Required information Problem 11-33 Special Order [LO 11-2] [The following information applies to the questions displayed below.] Green Grow Inc. (GGI) manufactures lawn fertilizer. Because of the product's 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. GGI's operating capacity is 22,000 one-hundred-pound bags per month, and it currently is selling 20,000 bags manufactured in 20 batches of 1,000 bags each. The firm just received a request for a special order of 5,000 one-hundred-pound bags of fertilizer for $130,000 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 $2,500 cost for GGI. The special order would be processed in two batches of 2,500 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 GGI's current operations: Sales and production cost data for 20,000 bags, per bagi Sales price Variable manufacturing costs Variable selling costs Fixed manufacturing costs Fixed marketing costs $40 3 12 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 5,000 bags. Part 1 Required: 1. What is the total relevant cost of filling this special sales order? 2. What would be the change in operating income if the special order is accepted? 3. What is the break-even selling price per unit for the special sales order (i.e., what is the selling price that would result in a zero effect on operating income)? 4. Prepare comparative income statements, using the contribution format, for both the current situation and assuming the special order is accepted at the break-even price determined in requirement 3. Prepare comparative income statements, using the contribution format, for both the current situation and assuming the special order is accepted at the break-even price determined in requirement 3. Sales: Regular Special order Less: Variable costs: Current Situation Current Situation + Special Sales Order $ 17,000x $ 5,000 680,000 $697,000 827,500 $ 832,500 Manufacturing 85,000 374,000 Marketing 51,000 136,000 51,000 425,000 Contribution margin 561,000 407,500 Less: Fixed costs: Manufacturing 240,000 25,000 Marketing 80,000 One-time packing/delivery 320,000 Operating income $ 241,000 25,000 $382,500