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Green Grow Incorporated (GGI) manufactures lawn fertilizer. Because of the products very high quality, GGI often receives special orders from agricultural research groups. For each

Green Grow Incorporated (GGI) manufactures lawn fertilizer. Because of the products very high quality, GGI often receives special orders from agricultural research groups. For each type of fertilizer sold, each bag is carefully filled to have the precise mix of components advertised for that type of fertilizer. GGIs operating capacity is 36,000 one-hundred-pound bags per month, and it currently is selling 34,000 bags manufactured in 34 batches of 1,000 bags each. The firm just received a request for a special order of 7,800 one-hundred-pound bags of fertilizer for $210,000 from APAC, a research organization. The production costs would be the same, but there would be no variable selling costs. Delivery and other packaging and distribution services would cause a one-time $5,300 cost for GGI. The special order would be processed in two batches of 3,900 bags each. (No incremental batch-level costs are anticipated. Most of the batch-level costs in this case are short-term fixed costs, such as salaries and depreciation.) The following information is provided about GGIs current operations:

Sales and production cost data for 34,000 bags, per bag:
Sales price $ 45
Variable manufacturing costs 15
Variable selling costs 2
Fixed manufacturing costs 20
Fixed marketing costs 6

No marketing costs would be associated with the special order. Because the order would be used in research and consistency is critical, APAC requires that GGI fill the entire order of 7,800 bags.

Assume that the $20.00 fixed manufacturing overhead cost per unit consists of facility-level costs ($17.00/unit at the 34,000-unit output level), with the remainder being setup-related (i.e., batch-level) costs. Assume that the setup-related costs increase in total with the number of batches produced and that the facility-level fixed costs do not vary in total, with either the number of units produced or the number of batches produced during a period.

Required:

1. What is the total fixed manufacturing overhead cost for the period? Break down (that is, decompose) this total cost into its component parts (i.e., batch-related overhead costs and facility-related fixed overhead costs).

2. Calculate the relevant unit and total costs of the special order, including the new information about batch-related costs. Assume, as before, the one-time delivery cost of $5,300.

3. If accepted, how would the special order affect GGIs short-term operating income?

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