Reference no: EM132990906

Gostkowski Company produces and sells 75,000 boxes of specialty foods each year. Each box contains the same assortment of food. The company has computed the following annual? costs:

Cost Item                                                   Total Costs
Variable production costs                       $ 375,000
Fixed production costs                             530,000
Variable selling costs                              225,000
Fixed selling and administrative costs           170,000
Total costs                                           $ 1,300,000

Gostkowski normally charges $30 per box. A new distributor has offered to purchase 7,500 boxes at a special price of $26 per box. Gostkowski will incur additional packaging costs of $1 per box to complete this order.

Requirements

Problem ?(a) Suppose Gostkowski has surplus capacity to produce 7,500 more boxes. What will be the effect on Gostkowski?'s income if it accepts this? order?

Problem ?(b) Suppose that instead of having surplus capacity to produce 7,500 more? boxes, Gostkowski has surplus capacity to produce only 1,500 more boxes. What will be the effect on Gostkowski?'s income if it accepts the new order for 7,500 ?boxes?