Required:

1. Calculate the labor hours needed for the special order, calculate the incremental profit/(loss) for the special order, calculate the capacity available for regular orders, compute the contribution margin per hour for regular orders, compute the contribution margin lost from regular sales orders, calculate the total contribution margin including the special order.
2. Should Apple Hilly Farms complete the Special Order?

Apple Hilly Farms
	a. Labor hours required for special order
	Product	Labor cost per unit	Wage rate per hour	Labor hours per unit	Labor hours needed for estimated production
	Apple Pies
	Caramel Apples
		Special order quantity	Total hours required
	Apple Pies
	Caramel Apples
		Capacity used for special order
	b. Incremental profit/(loss) on special order
	Differential revenues	Apple Pies	Caramel Apples	Total
	Special order units
	Selling price
	Differential revenue
	Differential costs
	Special order units
	Variable costs per unit
	Differential cost
	Differential profit/(loss)
	If labor hours for the additional 8,000 units combined, then regular production will need to be reduced for the product with the lowest contribution margin
	Bakery capacity (in direct-labor hours)
	Capacity used for special order
	Capacity available for regular orders
	Capacity needed for apple pies
	Capacity needed for caramel apples
	Hours over capacity for regular orders
	c. Compute contribution margin per hour for regular orders
		Apple Pies	Caramel Apples
	Revenue per unit
	Variable cost per unit
	Contribution margin per unit
	Direct-labor hours per unit
	Contribution margin per hour
	d. Compute contribution margin lost from regular sales
	Lowest contribution margin per hour		$ -
	Hours over capacity for regular orders
	Total lost contribution margin
	Total lost production in units
	e. Total contribution margin with special order
	Special Order	Apple Pies	Caramel Apples	Total
	CM per unit
	Number of units
	Special order CM
	Regular Production
	CM per unit
	Number of units
	Regular production CM
	Total contribution margin
	Regular production contribution margin
	Difference in profit with special order

Nikki started by talking with her parents about some of the estimated sales and costs that they thought would incur for the month of September. Here are some of those estimates: Additionally, Sally informed her that the farm received a special order to sell their apple pies and caramel apples at the local county fair in September. Sally wanted to sell 3,500 pies and 4,500 caramel apples for a discounted price of $20.00 and $7.50, respectively. With, the number of staff and the size of the bakery, Nikki determined that the maximum capacity for the bakery is 4,200 labor hours a month. At the current projected sale amounts she expects that they'll need 3,550 hours to meet their regular sales volume. After review of the salaries of all the staff, Nikki determined that the average hourly wage was $16.00. Ned was also concerned about how much it cost to keep apple pie inventory on hand at the end of the month, caramel apples should be sold within a couple days, so no inventory is left at the end of the month. Since there is a limited shelf life for the apple pies, Ned and Sally try and keep the ending inventories in line with next month's expectations. They estimated that they'd have to start 10,000 apple pies in order to have 1,000 apple pies in-process at the end of the month and 500 finished pies. At the end of August there were 500 pies that were in-process and no finished pies. The variable costs associated with these inventories were as follows: And the conversion cost for the in-process pies is 50% completed and 100% for direct materials. (Use the paragraph above to calculate the units completed and transferred out for work-in-process pies) September was a success for the bakery! They didn't complete the special order but focused on normal sales and with some overtime baked a few more pies. Here were the results for the actual sales and costs at the end of the month. (The actuals as presented below are only to be used for Problem 6.)