Marla's Food Service provides meals that nonprofit organizations distribute to handicapped and elderly people. The following is her forecasted income statement for April, when she expects to produce and sell 3,000 meals. Anount Sales revenue Coste of meale produced Gross profit Administrative costa Operating profit $18,000 13,500 $4,500 2,100 $2,400 Per Unit $6.00 4.50 $1.50 0.70 $0.80 Fixed costs Included in this income statement are $4,500 for meal production and $600 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 $3.50 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 3,000 Units Alternative 3,300 Units Differefice Sales revenue Variable costs: Meals Administrative Contribution margin Fixed costs Operating profit
Marla's Food Service provides meals that nonprofit organizations distribute to handicapped and elderly people. The following is her forecasted income statement for April, when she expects to produce and sell 3,000 meals. Anount Sales revenue Coste of meale produced Gross profit Administrative costa Operating profit $18,000 13,500 $4,500 2,100 $2,400 Per Unit $6.00 4.50 $1.50 0.70 $0.80 Fixed costs Included in this income statement are $4,500 for meal production and $600 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 $3.50 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 3,000 Units Alternative 3,300 Units Differefice Sales revenue Variable costs: Meals Administrative Contribution margin Fixed costs Operating profit
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
a. What impact would accepting this special order have on operating profit?
b. From an operating profit perspective for April, should Maria accept the order?
Transcribed Image Text:b. From an operating profit perspective for April, should Maria accept the order?
O Yes
O No
Transcribed Image Text:Maria's Food Service provides meals that nonprofit organizations distribute to handicapped and elderly people. The following is her
forecasted income statement for April, when she expects to produce and sell 3,000 meals.
Amount
$18,000
13,500
$ 4,500
2,100
$2,400
Per Unit
$6.00
Sales revenue
Costs of meala produced
Gross profit
Administrative costs
4.50
$1.50
0.70
Operating profit
$0.80
Fixed costs included in this income statement are $4,500 for meal production and $600 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
$3.50 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
3,000 Units
Alternative
3,300 Units
Differehce
Sales revenue
Variable costs:
Meals
Administrative
Contribution margin
Fixed costs
Operating profit
Expert Solution
Step 1
Working Notes
1. Sales for 3,300 units = 3,000 x 6 + 300 x 3.5 = 19,050
2. Meal Cost :
Variable cost = 13,500 - 4,500 = 9,000
Variable cost per unit = 9,000 / 3000 = $3
Fixed cost = 4,500
3. Administrative Cost
Variable cost = 2,100 - 600 = 1,500
Variable administrative cost per unit = 1500 /3000 = 0.50
Fixed cost = 600
4. Variable meal cost for 3,300 units
Variable cost = 3,300 x 3 = 9,900
5. Variable Meal cost for 3,300 units
variable cost = 3,300 x 0.50 = 1,650
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