Reference no: EM132652959

Question - Heavenly Treat manufactures cases of hot chocolate 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 costs per month $60,000

Wildwood Camps is a youth organization that serves hot chocolate at its camping facilities throughout Montana. The organization has offered Heavenly Treat $29 per case for a special-order batch of 1,000 cases. Each case would require a shrink-wrap covering because of moisture problems associated with the organization's storage warehouses. The cost to shrink-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 chocolate? What is the incremental cost per case associated with this special-order?

b-1. What is the impact on monthly operating profit if the special order is accepted and Heavenly Treats is currently producing and selling 10,000 cases per month?

b-2. 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 12,000 cases per month?

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