Chapter 4 Fundamentals of Cost Analysis for Decision Making 141 All applicable Exercises are included in Connect Accounting connect ACCOUNTING EXERCISES (104-1,2) 4-32. Special Orders Maria's Food Service provides meals that nonprofit organizations distribute to handicapped and elderly people. Here is her forecasted income statement for April, when she expects to produce and sell 3,000 meals: IS Amount Per Unit Sales revenue Costs of meals produced Gross profit.. Administrative costs Operating profit $18,000 13,500 $ 4,500 2,100 $ 2,400 $6.00 4.50 $1.50 0.70 $0.80 Fixed costs included in this income statement are $4,500 for meal production and $600 for administrative costs. Maria has received a special request from an organization sponsoring a picnic to raise funds for the Special Olympics. This organization is willing to pay $3.50 per meal for 300 meals on April 10. Maria has sufficient idle capacity to fill this special order. These meals will incur all of the variable costs of meals produced, but variable administrative costs and total fixed costs will not be affected. Required a. What impact would accepting this special order have on operating profit? h. Should Maria accept the order? (CPA adapted) (LO +1,2) 4-33. Special Orders Carlsbad Enterprises has a capacity to produce 400,000 computer cases per year. The com- pany is currently producing and selling 320,000 cases per year at a selling price of $80 per case. The cost of producing and selling one case follows: Variable manufacturing costs Fixed manufacturing costs.... Variable selling and administrative costs. Fixed selling and administrative costs Total costs $32 8 16 4 $60 The company has received a special order for 20,000 cases at a price of $50 per case. Because it does not have to pay a sales commission on the special order, the variable selling and adminis- trative costs would be only $10 per case. The special order would have no effect on total fixed costs. The company has rejected the offer based on the following computations: Selling price per case .. Variable manufacturing costs Fixed manufacturing costs Variable selling and administrative costs.. Fixed selling and administrative costs. Net profit (loss) per case $50 32 8 10 4 $(4) a. Required What is the impact on profit for the year if Carlsbad accepts the special order? Show computations. b. Do you agree with the decision to reject the special order? Explain