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What is the impact on profits of accepting special order

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Reference no: EM132462710

Problem - Great Oaks Farm grows organic vegetables and sells them to local restaurants after processing. The farms leading produce is Salad in a bag, which is mixed of organic salad green ingredients prepared ready to serve. The company sells a large bag to restaurants for $25. It calculates the variable cost per bag at $19, including $1. For delivery, and the average total cost per bag is $22. Because the vegetables are perishable and Great Oaks Farm is experiencing a large crop, the farm has extra capacity. Another company offers to purchase 2500 bags during the next month at $21 per bag. Delivery to the company cost $0.75 per bag. It can meet most of the request but would sacrifice 400 bags of regular sales to fill the special order.

Required -

1. What is the impact on profits of accepting this special order?

2. What non-quantitative issues should management consider before making a final decision?

3. How would the analysis change if the special order were for 2500 bags per month for the next 2 years?

Reference no: EM132462710

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