Reference no: EM132658201

Green Grow Inc. (GGI) manufactures lawn fertilizer. Because of the produces 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 38.000 one-hundred-pound bags per month, and it currently is selling 36.000 bags manufactured in 36 batches of 1.000 bags each. The firm just received a request for a special order of 8.200 one-hundred-pound bags of fertilizer for $230.000 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 $5,300 cost for GGI. The special order would be processed in two batches of 4.100 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:

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 8.200 bags.

Required:

Question 1. What is the total relevant cost of filling this special sales order?

Question 2. What would be the change in operating income if the special order is accepted?

Question 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)?

Question 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.