Green Grow Inc. (GGI) manufactures lawn fertilizer. Because of the product's 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 36,000 one-hundred-pound bags per month, and it currently is selling 34,000 bags manufactured in 34 batches of 1,000 bags each. The firm just received a request for a special order of 7,800 one-hundred-pound bags of fertilizer for $210,000 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 3,900 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; Part 1 Sales and production cost data for 34,000 bags, per bag: Sales price Variable manufacturing costs Variable selling costs Fixed manufacturing costs Fixed marketing costs $45 15 2 20 6 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 7,800 bags. Required: (Hints available) 1. What is the total cost of filling this special sales order, including all relevant costs and opportunity costs? 2. What would be the change in operating income if the special order is accepted? 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)?
Green Grow Inc. (GGI) manufactures lawn fertilizer. Because of the product's 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 36,000 one-hundred-pound bags per month, and it currently is selling 34,000 bags manufactured in 34 batches of 1,000 bags each. The firm just received a request for a special order of 7,800 one-hundred-pound bags of fertilizer for $210,000 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 3,900 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; Part 1 Sales and production cost data for 34,000 bags, per bag: Sales price Variable manufacturing costs Variable selling costs Fixed manufacturing costs Fixed marketing costs $45 15 2 20 6 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 7,800 bags. Required: (Hints available) 1. What is the total cost of filling this special sales order, including all relevant costs and opportunity costs? 2. What would be the change in operating income if the special order is accepted? 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)?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Green Grow Inc. (GGI) manufactures lawn fertilizer. Because of the product's 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 36,000 one-hundred-pound bags per
month, and it currently is selling 34,000 bags manufactured in 34 batches of 1,000 bags each. The firm just received a
request for a special order of 7,800 one-hundred-pound bags of fertilizer for $210,000 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 3,900 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;
Sales and production cost data for 34,000 bags, per bag:
Sales price
Variable manufacturing costs
Part 1
Variable selling costs
Fixed manufacturing costs
Fixed marketing costs
$45
15
2
20
6
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 7,800 bags.
Required: (Hints available)
1. What is the total cost of filling this special sales order, including all relevant costs and opportunity costs?
2. What would be the change in operating income if the special order is accepted?
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)?
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