Reference no: EM13589183
Poppycrock, Inc., manufactures large crates of microwaveable popcorn that are typically sold to distributors. Its main factory has the capacity to manufacture and sell 35,000 crates per month. The following information is available for the factory: Sales price per crate $ 26.00 Variable cost per crate: Direct materials 4.50 Direct labor 10.50 Variable overhead 3.90 Fixed costs per month $ 107,000.00 Boys and Girls of Canada is a not-for-profit organization that raises funds each year by selling popcorn door-to-door. It offers to pay Poppycrock $22 per crate for a special-order batch of 5,000 crates.
The special-order popcorn would include a unique label with information about the Boys and Girls of Canada. The additional cost of the label is estimated at $1.00 per crate. In addition, the variable overhead for these special-order crates would decrease by $0.50 because there would be no distribution costs. a. What is the incremental cost of creating a normal crate of popcorn? A special-order crate of popcorn? (Round your answers to 2 decimal places. Omit the "tiny_mce_markerquot; sign in your response.)
Normal crates ? Special order crates ?b. Show the impact on Poppycrock's monthly operating profit if they accept the offer and they are producing and distributing 30,000 normal crates per month. What is the opportunity cost of not accepting the offer? (Input all amounts as positive values. Round your answers to 2 decimal places. Omit the "tiny_mce_markerquot; signs in your response.) Monthly operating profit when distributing the normal 30,000 crates can be found by multiplying the contribution margin by the number of crates sold and deducting fixed expenses as follows: CM = ? - ? = ? . Monthly operating profit = ? × 30,000 = ? - ? = ? . If Poppycrock accepts the special order, they will add the contribution margin for the 5,000 crates for the Boys and Girls of Canada order to their monthly profit: (? - ? ) × 5,000 = ? . Monthly operating profit with the special order is ? + ? = ? .
The opportunity cost of not accepting the special order is ? . c. Show the impact on Poppycrock's monthly operating profit if they accept the offer and they are producing and selling 35,000 normal crates per month. What is the opportunity cost of accepting the offer? (Input all amounts as positive values. Round your answers to 2 decimal places. Omit the "tiny_mce_markerquot; signs in your response.) In this case, Poppycrock is operating at full capacity. They have a production constraint that will require them to forego some of their normal sales in order to accept the special order. Without the special order, their monthly profits at full capacity would be: (? - ? ) × 35,000 crates -? = ? With the special order their monthly profits would be: (? - ? ) × 30,000 crates + (? - ? ) × 5,000 - ? = ? .
The difference between these monthly operating profit numbers (? - ? = ? ) is the opportunity cost of accepting the special order when Poppycrock is operating at full capacity. It is also equal to the difference in the normal and special order contribution margins (? -? =? ) for the 5,000 crates being considered: ? × 5,000 crates = ?