Question

forecasted income statement for April, when she expects to produce and sell 3,000 meals.

	Amount				Per Unit
Sales revenue	$	18,000			$	6.00
Costs of meals produced		13,500				4.50
Gross profit	$	4,500			$	1.50
Administrative costs		2,100				0.70
Operating profit	$	2,400			$	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 Difference Sales revenue Variable costs: Meals Administrative Contribution margin Fixed costs Operating profit

Answer 1

Answer:

	Status Quo	Alternative	Difference	Analysis
	3000 units	3000 units
Sales revenue	$    18,000	$    19,050	$     1,050	Favorable
Variable costs:
Meals	$      9,000	$      9,900	$        900	Unfavorable
Administrative	$      1,500	$      1,500	$           -	No effect
Contribution Margin	$      7,500	$      7,650	$        150	Favorable
Fixed costs	$      5,100	$      5,100	$           -	No effect
Operating profit	$      2,400	$      2,550	$        150	Favorable

Calculations:

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