Banana Company produces and sells 20,000 cans of banana puree each year. The following information reflects a
Question:
Banana Company produces and sells 20,000 cans of banana puree each year. The following information reflects a breakdown of its costs:
Cost Item | Costs per Can | Total Costs |
Variable production costs | $14 | $280,000 |
Fixed production costs | $10 | $200,000 |
Variable selling costs | $7 | $140,000 |
Fixed selling and administrative costs | $5 | $100,000 |
Total costs | $36 | $720,000 |
Banana marks up its prices 40% over full costs. It has surplus capacity to produce 10,000 more cans. An Italian supermarket company has offered to purchase 7,000 cans of the product at a special price of $39 per can. Banana will incur additional shipping and selling costs of $3 per can to complete this order.
Required: (a) What will be the effect on Banana's operating income if it accepts this order? (b) Prepare a break-even analysis for the additional order.
Management Accounting Information for Decision-Making and Strategy Execution
ISBN: 978-0137024971
6th Edition
Authors: Anthony A. Atkinson, Robert S. Kaplan, Ella Mae Matsumura, S. Mark Young