Reference no: EM132668508

Question - Heavenly Treat manufactures cases of hot choclate that are typically sold to restaurants. Its main factory has the capacity to produce and sell 12,000 cases per month. The following information is available for the factory.

Sales price per case: $40

Variable cost per case:

Direct Materials-12

Direct Labor-3

Variable overhead & sales commissions-10

Fixed cost per month: 60,000

Wildwood Camps is a youth organization that serves hot choclate at its camping facilities throughout Montana. The organizations has offered Heavenly Treat $29 per case for a special order batch of 1K cases. Each case would require a shrined wrap covering because of moisture problems associated with the organizations storage warehouse. The cost to shrined wrap the order is estimated at $3 per case. Selling costs associated with the order would be decreased by $1 per case because it would not include any sales commissions.

Required -

A. What is the normal incremental cost of producing and selling a case of hot choclate? What is the incremental cost per case associated with this special order?

B. What is the opportunity cost of not accepting the offer?

C-1. What is the impact on monthly operating profit if the special order is accepted and Heavenly Treats is currently operating at its full capacity of 12000 cases per month?

C-2. What is the opportunity cost of accepting the offer?