Question
Assume that Cold Rock sells ice cream for $4.10 per gallon. The cost of each gallon follows: Materials $ 1.10 Labor .50 Variable overhead .50
Assume that Cold Rock sells ice cream for $4.10 per gallon. The cost of each gallon follows:
Materials | $ | 1.10 | |
Labor | .50 | ||
Variable overhead | .50 | ||
Fixed overhead ($22,750 per month, 18,200 gallons per month) | 1.25 | ||
Total cost per gallon | $ | 3.35 | |
One of Cold Rock's regular customers asked the company to fill a special order of 600 gallons at a selling price of $2.85 per gallon for a fund-raising picnic for a local charity. Cold Rock has capacity to fill it without affecting total fixed costs for the month. Cold Rock's general manager was concerned about selling the ice cream below the cost of $3.35 per gallon and has asked for your advice.
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