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Special Order with spare capacity. Beautiful Biscuits (BB)sells biscuits, brownies and beverages to small local shops. The selling price per brownie is $1.25; the variable cost to produce is 0.75. The principal of the local primary school has asked BB to provide ten dozen brownies for its spring picnic. The principal wants to buy the brownies at BB's cost. Unlike regular sales, each special order brownie will need to be delivered in a plastic container to protect it from dust. The containers cost $0.05 each. The brownies can be prepared ahead of time when workers are not busy.
Required:
Question A. Calculate the contribution margin per brownie for the brownies sold in the local shops.
Question B. Calculate the contribution margin per brownie for the brownies requested by the school principal.
Question C. If the principal can pay no more than $.80 per brownie, should BB take the order? Why?
Question D. Would your decision change if the workers did not have any spare capacity and had to give up normal sales of brownies to accept the principal's order.
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