Question
Maria's Food Service provides meals that nonprofit organizations distribute to handicapped and elderly people. The following is her forecasted income statement for April, when she
Maria's Food Service provides meals that nonprofit organizations distribute to handicapped and elderly people. The following is her forecasted income statement for April, when she expects to produce and sell 2,100 meals:
Amount | Per Unit | ||||||
Sales revenue | $ | 10,710 | $ | 5.10 | |||
Costs of meals produced | 8,505 | 4.05 | |||||
Gross profit | $ | 2,205 | $ | 1.05 | |||
Administrative costs | 1,050 | 0.50 | |||||
Operating profit | $ | 1,155 | $ | 0.55 | |||
Fixed costs included in this income statement are $2,961 for meal production and $420 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 $3.05 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? (Select option "higher" or "lower", keeping Status Quo as the base. Select "none" if there is no effect.)
**PLEASE ADD IN EXPLANATION OF EACH CALCULATION, THANKS**
Status Quo 2,100 Units | Alternative 2,400 Units | DIFFERENCE HIGHER/LOWER/NONE | ||
Sales revenue | ||||
Variable costs: | ||||
Meals | ||||
Administrative | ||||
Contribution margin | ||||
Fixed costs | ||||
Operating profit |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started