Special-Order Decisions

Gourmet Ice Cream Company

Gourmet Ice Cream Company has idle capacity. It only operates at 80 percent capacity right now. The company can produce up to 20 million gallon units. The company produces only gourmet ice cream. The total costs associated with the current production and sales are shown below (in thousands of dollars). An ice cream distributor not normally served has offered to buy 2 million units at $2.80 per gallon under its own label. The distributor has also agreed to pay the transportation costs. Since the distributor approached the company directly, there is no sales commission.

Revenues	$57,600
Variable costs
	Dairy ingredients	20,160
	Fruit, chocolate, mint, etc.	2,880
	Sugar	4,320
	Direct labor	7,200
	Containers	5,760
	Sales commissions	576
	Distribution	864
	Miscellaneous	1,440
Total Variable costs	$43,200
Fixed costs
	Salaries	1,050
	Depreciation	360
	Utilities	100
	Taxes	40
	Other	180
Total fixed costs	1,730
Operating income	$12,670

Hint: Dont forget that the income statement is based on the actual units sold.

Required:

Computations (use Excel).

Show the additional profit or loss that would be generated by the special order.

What is the minimum profit Gourmet Ice Cream Company should accept? Show the computations, but respond in the memo.

Memo (use Word).

• As the manger of the ice cream company, would you accept this order or reject it?
• What is the minimum price you would accept?

Refer to your analysis in your response. Write a four or five paragraph memo to the owner of the business. Start with an introduction and end with a recommendation. Each of the four or five paragraphs should have a heading.

Short essay (use Word).

Read the background information and do additional research as needed to comment on the following topic.

What are some non-qualitative considerations in deciding whether or not to accept a special order.

Start with an introduction and end with a summary or conclusion. Use headings. Maximum length of two pages.

Assignment Expectations

Each submission should include two files: (1) An Excel file; and (2) A Word document. The Word document shows the memo first and short essay last. Assume a knowledgeable business audience and use required format and length. Individuals in business are busy and want information presented in an organized and concise manner.