Problem $16-29($Static$)$ Relevant costs, special sales order$$idle versus full capacity LO $16-2,16-3$

The Delmar Beverage Company produces a premium root beer that is sold throughout its chain of restaurants in the Midwest. The company is currently producing $4,000$ gallons of root beer per day, which represents $80\%$ of its manufacturing capacity. The root beer is available to restaurant customers by the mug, in bottles, or packaged in six$-$packs to take home. The selling price of a gallon of root beer averages $$10,$ and cost accounting records indicate the following manufacturing costs per gallon of root beer:

Raw materials $ $3\mathrm{.}20$

Direct labor $1\mathrm{.}60$

Variable overhead $1\mathrm{.}00$

Fixed overhead $2\mathrm{.}20$

Total absorption cost $ $8\mathrm{.}00$

In addition to the manufacturing costs just described, Delmar Beverage incurs an average cost of $$0\mathrm{.}50$ per gallon to distribute the root beer to its restaurants.

SaveMore Incorporated, a chain of grocery stores, is interested in selling the premium root beer in gallon jugs throughout its stores in the St$.$ Louis area during holiday periods and has offered to purchase root beer from Delmar Beverage at a price of $$7\mathrm{.}70$ per gallon. SaveMore believes it could sell $600$ gallons per day. If Delmar Beverage agrees to sell root beer to SaveMore, it estimates the average distribution cost will be $$0\mathrm{.}70$ per gallon.

Required:

Identify all the relevant costs that Delmar Beverage should consider in evaluating the special sales order from SaveMore?

How would Delmar Beverage$$s daily operating income be affected by the acceptance of this offer?

Assume that Delmar Beverage is currently producing $5,000$ gallons of root beer daily.

Identify all the relevant costs that Delmar Beverage should consider in evaluating the special sales order from SaveMore?

How would Delmar Beverage$$s daily operating income be affected by the acceptance of this offer?