Question

Exercise 4-35 Special Orders (LO 4-1.2) Maria's Fand Service provides meals that nonprofit organ zations distribuin handicapped and alderly peonin. Here is har forneasted income statement for Anri, when she expects paradurn and snil 4,000 moals: Sale Teen Costs of MRAIA Cauca Autouni 5 28,000 20,000 000 3200 3 4.800 Per Uril $ 700 5.00 200 3 Operating and it $ 1.20 Flxed costs incluced in this income statement are $8.000 for meal production and $800 for administrative ooste, Marte he received Apoll request from an organization sponsoring a picnic to raise funds for the Special Olympics. This organization is willing to pay $4.00 per mcal far 300 meals an Apri 10. Maria has suficient idle capacity to fill this special arder. These meals wil incur all of the variable costs meals produced, but variable administrative casts and total fixed costs wil not be affected. Required: a. What impact would accepting the special order have on operating profil? Select option "higher" or "lower" keeping Status Quo as the base Select "none" if there is no effect.) 4,000 Units 4,300 Units Difference Variable costs: Meals Administrative Contribution margin Flxadas Operating profit b. From an operating proht perspective for April, should Marle accept the order? No

Answer 1

Answer- Variable cost per meal= Cost of meal produced- Fixed cost/ No.of units produced

=$20,000-$8,000/ 4,000 units

=$3 per meal

	Status Quo 4,000 Units	Alternative 4,300 Units	Difference	Higher or Lower?
Sales Revenue	$28,000	$29,200 ($28,000+(300×$4.00)	$1,200	higher
Variable Costs:
Meals	$12,000 (4,000×$3)	$12,900 (4,300×$3)	$900	higher
Administrative	$2,400 (3,200-800)	$2,400	0
Contribution margin	$13,600	$13,900	$300	higher
Fixed Costs	$8,800 (8,000+800)	$8,800	0
Operating Profit	$4,800	$5,100	$300	higher

b-Yes. Maria should accept the order from an operating profit perspective as there is $300 profit higher than before.

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