Required: 1. What is the total relevant cost of filling this special sales order? 2. What would be the change in operating Income if the special order is accepted? 3. What is the breakeven selling price per unit for the special sales order (l.e., what is the selling price that would result in a zero effect on operating Income)? 4. Prepare comparative Income statements, using the contribution format, for both the current situation and assuming the special order Is accepted at the breakeven price determined in requirement 3.
Required: 1. What is the total relevant cost of filling this special sales order? 2. What would be the change in operating Income if the special order is accepted? 3. What is the breakeven selling price per unit for the special sales order (l.e., what is the selling price that would result in a zero effect on operating Income)? 4. Prepare comparative Income statements, using the contribution format, for both the current situation and assuming the special order Is accepted at the breakeven price determined in requirement 3.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![Required Information
[The following information applies to the questions displayed below.]
Green Grow Incorporated (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 23,000 one-hundred-pound
bags per month, and It currently is selling 21,000 bags manufactured in 21 batches of 1,000 bags each. The firm Just
received a request for a special order of 5,200 one-hundred-pound bags of fertilizer for $131,000 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 $1,600 cost for GGI. The special order would be processed in
two batches of 2,600 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 price
Sales and production cost data for 21,000 bags, per bag:
$ 41
18
4
Fixed manufacturing costs
10
5
Variable manufacturing costs
Variable selling costs
Fixed marketing costs
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 5,200 bags.
Assume that the $10.00 fixed manufacturing overhead cost per unit consists of facility-level costs ($7.00/unit at the 21,000-
unit output level), with the remainder being setup-related (l.e., batch-level) costs. Assume that the setup-related costs
Increase in total with the number of batches produced and that the facility-level fixed costs do not vary in total, with either
the number of units produced or the number of batches produced during a period.
Required:
1. What is the total relevant cost of filling this special sales order?
2. What would be the change in operating Income if the special order is accepted?
3. What is the breakeven 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)?
4. Prepare comparative Income statements, using the contribution format, for both the current situation and assuming the special order
Is accepted at the breakeven price determined in requirement 3.
Complete this question by entering your answers in the tabs below.
Required 1
Required 2 Required 3
Required 4
What is the total relevant cost of filling this special sales order?
Total relevant cost
<Required 1
Required 2 >](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F3648e63c-5f72-43ae-9547-3b45613e4e55%2Fd0a6aabe-5057-45f6-b3f5-cc1bff2890cf%2F35wwdl_processed.png&w=3840&q=75)
Transcribed Image Text:Required Information
[The following information applies to the questions displayed below.]
Green Grow Incorporated (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 23,000 one-hundred-pound
bags per month, and It currently is selling 21,000 bags manufactured in 21 batches of 1,000 bags each. The firm Just
received a request for a special order of 5,200 one-hundred-pound bags of fertilizer for $131,000 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 $1,600 cost for GGI. The special order would be processed in
two batches of 2,600 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 price
Sales and production cost data for 21,000 bags, per bag:
$ 41
18
4
Fixed manufacturing costs
10
5
Variable manufacturing costs
Variable selling costs
Fixed marketing costs
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 5,200 bags.
Assume that the $10.00 fixed manufacturing overhead cost per unit consists of facility-level costs ($7.00/unit at the 21,000-
unit output level), with the remainder being setup-related (l.e., batch-level) costs. Assume that the setup-related costs
Increase in total with the number of batches produced and that the facility-level fixed costs do not vary in total, with either
the number of units produced or the number of batches produced during a period.
Required:
1. What is the total relevant cost of filling this special sales order?
2. What would be the change in operating Income if the special order is accepted?
3. What is the breakeven 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)?
4. Prepare comparative Income statements, using the contribution format, for both the current situation and assuming the special order
Is accepted at the breakeven price determined in requirement 3.
Complete this question by entering your answers in the tabs below.
Required 1
Required 2 Required 3
Required 4
What is the total relevant cost of filling this special sales order?
Total relevant cost
<Required 1
Required 2 >
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VIEWStep 2: Calculate relevant cost of filling special sales order
VIEWStep 3: Calculate change in operating income on acceptance of special order
VIEWStep 4: Calculate break-even selling price for special order
VIEWStep 5: Prepare comparative income statement
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