Reference no: EM133129639
Question - In 2014 Janice Martin fulfilled a life-long dream and moved her home-based cottage baking business to a retail storefront with a commercial kitchen. Since then, she has continued to develop here product lines and now specializes in three products featuring high quality cocoa: muffins, tortes, and cookies.
Janice just received the latest annual income statement, shown below.
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Muffins
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Tortes
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Cookies
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Total
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Sales volume
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100,000 boxes
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60,000 tortes
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40,000 boxes
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|
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Sales revenue
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$2,500,000
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$2,400,000
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$480,000
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$5,380,000
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Cost of goods sold
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1,500,000
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1,380,000
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240,000
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3,120,000
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Gross profit
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1,000,000
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1,020,000
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240,000
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2,260,000
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Selling & Administrative Expense
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|
|
|
|
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Variable
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400,000
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360,000
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80,000
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840,000
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Fixed
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330,000
|
260,000
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180,000
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770,000
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Total Selling & Administrative Expense
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730,000
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620,000
|
260,000
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1,610,000
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|
Operating income (loss)
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$270,000
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$400,000
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$(20,000)
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$650,000
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Janice's accountant, Denis Mangic, provided her with the following unit costs for each of the three products so Janice can understand what is included in cost of goods sold.
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Muffins
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Tortes
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Cookies
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Variable cost of goods sold
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$12.00
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$18.00
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$4.00
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Fixed cost of goods sold
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3.00
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5.00
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2.00
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Variable selling & administrative
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4.00
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6.00
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2.00
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Total unit cost
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$19.00
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$29.00
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$8.00
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Denis informed Janice that in developing the product costs, he has allocated $1.00 per unit in fixed cost of goods sold for manufacturing overhead costs that are incurred to support the entire kitchen area. All other fixed costs are incurred to support individual product lines. He also confirmed that $240,000 in corporate advertising costs that, because the ads feature all three products, have been allocated equally across the three product lines as part of fixed selling and administrative expenses.
A new coffee shop in town approached Janice and asked to purchase 5,000 boxes of cookies to serve in the shop. The owner has offered to pay $7.00 per box, but he would like the cookies to be individually packaged, which Janice estimates will add $0.25 in costs per box. Since the owner has contacted Janice directly, the bakery will save $0.75 per box in standard selling and administrative costs on the order. The bakery only has adequate capacity to produce 3,500 boxes.
Required -
1. Calculate the contribution margin per box for the special order.
2. Calculate the total contribution margin Janice will earn from the special order if she accepts it.
3. Should Janice should accept the special order (YES or NO)?
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