Lancaster Company manufactures two types of hair conditioners, Creemy and Shiney, out of a joint process. The
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Comida Buena, a supermarket chain, has asked Lancaster to supply it with 480,000 gallons of Shiney at a price of $7.30 per gallon. Comida Buena plans to have the conditioner bottled in 16-ounce bottles with its own Comida Buena label.
If Lancaster accepts the order, it will save $0.10 per gallon in packaging of Shiney. There is sufficient excess capacity for the order. However, the market for Creemy is saturated, and any additional sales of Creemy would take place at a price of $3.20 per gallon. Assume that no significant non-unit-level activity costs are incurred.
Required:
1. What is the profit normally earned on one production run of Creemy and Shiney?
2. Should Lancaster accept the special order? Explain.
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Related Book For
Cost Management Accounting And Control
ISBN: 101
6th Edition
Authors: Don R. Hansen, Maryanne M. Mowen, Liming Guan
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