Question

Carter Bakery bakes and sells bread at its retail outlets in Singapore. The average production and sales are 10,000 loaves per day. The company has the capacity to produce up to 15,000 loaves per day. The unit cost of production and selling (based on 10,000 loaves per day) is given below:

Direct materials $0.40

Direct manufacturing labor 0.10

Variable manufacturing overhead 0.15

Fixed manufacturing overhead 0.35

Variable selling expense 0.05

Fixed selling expense 0.25

Total $1.30

The Bakery sells its bread at $2.00 per loaf. Recently, a supermarket chain had approached Carter Bakery and proposed to buy 4,000 loaves of bread per day at $1.00 each.

Required

a. Compute the variable cost per loaf of bread.

b. Compute the total fixed cost per month (assume 30 days per month).

c. Compute the contribution margin per loaf of bread.

d. Compute the total profit of baking and selling 10,000 loaves per day for one month (assume 30 days per month).

e. Using suitable calculations, advise whether Carter Bakery should accept the special order. Calculate the additional profit per day if Carter Bakery accepts the special order.

Answer 1