Maria's Food Service provides meals that nonprofit organizations distribute to handicapped and elderly people. Here is her forecasted income statement for April, when she expects to produce and sell 3,900 meals:
Amount Per Unit
Sales revenue $ 26,910 $ 6.90
Costs of meals produced 19,305 4.95
Gross profit $ 7,605 $ 1.95
Administrative costs 3,120 0.80
Operating profit $ 4,485 $ 1.15
Fixed costs included in this income statement are $7,605 for meal production and $780 for administrative costs. Maria has received a special request from an organization sponsoring a picnic to raise funds for the Special Olympics. This organization is willing to pay $3.95 per meal for 300 meals on April 10. Maria has sufficient idle capacity to fill this special order. These meals will incur all of the variable costs of meals produced, but variable administrative costs and total fixed costs will not be affected.
Required: a. What impact would accepting this special order have on operating profit?
Status Quo 3,900 Units Alternative 4,200 Units Difference Sales revenue $26,910 Variable costs: Meals Administrative Contribution margin Fixed costs Operating profit
Maria's Food Service provides meals that nonprofit organizations distribute to handicapped and elderly people. Here is her forecasted income statement for April, when she expects to produce and sell 3,900 meals:
Amount Per Unit
Sales revenue $ 26,910 $ 6.90
Costs of meals produced 19,305 4.95
Gross profit $ 7,605 $ 1.95
Administrative costs 3,120 0.80
Operating profit $ 4,485 $ 1.15
Fixed costs included in this income statement are $7,605 for meal production and $780 for administrative costs. Maria has received a special request from an organization sponsoring a picnic to raise funds for the Special Olympics. This organization is willing to pay $3.95 per meal for 300 meals on April 10. Maria has sufficient idle capacity to fill this special order. These meals will incur all of the variable costs of meals produced, but variable administrative costs and total fixed costs will not be affected.
Required: a. What impact would accepting this special order have on operating profit?
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Related questions
Maria's Food Service provides meals that nonprofit organizations distribute to handicapped and elderly people. Here is her forecasted income statement for April, when she expects to produce and sell 2,600 meals:
| Amount | Per Unit | |||||
| Sales revenue | $ | 14,560 | $ | 5.60 | ||
| Costs of meals produced | 11,180 | 4.30 | ||||
| Gross profit | $ | 3,380 | $ | 1.30 | ||
| Administrative costs | 1,300 | 0.50 | ||||
| Operating profit | $ | 2,080 | $ | 0.80 | ||
Fixed costs included in this income statement are $3,380 for meal production and $520 for administrative costs. Maria has received a special request from an organization sponsoring a picnic to raise funds for the Special Olympics. This organization is willing to pay $3.30 per meal for 300 meals on April 10. Maria has sufficient idle capacity to fill this special order. These meals will incur all of the variable costs of meals produced, but variable administrative costs and total fixed costs will not be affected.
Required:
a. What impact would accepting this special order have on operating profit? (Select option "higher" or "lower", keeping Status Quo as the base. Select "none" if there is no effect.)
| Status Quo 2,600 units | Alternative 2,900 units | Difference | ||
| Sales Revenue | ? | ? | ? | ? |
| Variable Cost: | ||||
| Meal | ? | ? | ? | ? |
| Administrative | ? | ? | ? | ? |
| Contribution margin | ? | ? | ? | ? |
| Fixed cost | ? | ? | ? | ? |
| Operating cost | ? | ? | ? | ? |
b. From an operating profit perspective for April, should Maria accept the order?
| *Yes | |
| *No |
