Question
Garlic Company produces and sells 30,000 jars of minced garlic each year. The following information reflects a breakdown of its costs: Cost Item Costs per
Garlic Company produces and sells 30,000 jars of minced garlic each year. The following information reflects a breakdown of its costs:
Cost Item | Costs per Jar | Total Costs |
Variable production costs | $14 | $420,000 |
Fixed production costs | $8 | $240,000 |
Variable selling costs | $5 | $150,000 |
Fixed selling and administrative costs | $3 | $90,000 |
Total costs | $30 | $900,000 |
Garlic marks up its prices 40% over full costs. It has surplus capacity to produce 10,000 more jars. A New Zealand supermarket company has offered to purchase 8,000 jars of the product at a special price of $34 per jar. Garlic will incur additional shipping and selling costs of $2 per jar to complete this order.
Required: (a) What will be the effect on Garlic's operating income if it accepts this order? (b) Prepare a break-even analysis for the additional order.
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