Question

Assume that MTA Sandwiches sells sandwiches for $3.25 each. The cost of each sandwich follows.

Materials	$	0.80
Labor		0.30
Variable overhead		0.40
Fixed overhead ($26,280 per month, 21,900 units per month)		1.20
Total costs per sandwich	$	2.70

One of MTA's regular customers asked the company to fill a special order of sandwiches at a selling price of $2.05 each for a fund-raising event sponsored by a social club at the local college. MTA has capacity to fill it without affecting total fixed costs for the month. MTA's general manager was concerned about selling the sandwiches below the cost of $2.70 and has asked for your advice.

Required:

a. Prepare a schedule to show the impact on MTA's profits of providing 900 sandwiches in addition to the regular production and sales of 21,900 sandwiches per month.
  
b. Based solely on the data given, what is the lowest price per sandwich at which the special order can be filled without reducing MTA's profits?

Complete this question by entering your answers in the tabs below.

• Required A
• Required B

Prepare a schedule to show the impact on MTA’s profits of providing 900 sandwiches in addition to the regular production and sales of 21,900 sandwiches per month. (Select option "higher" or "lower", keeping Status Quo as the base. Select "none" if there is no effect.)

	Status Quo 21,900 Units Alternative 22,800 Units Difference Sales revenue Less variable costs: Materials Labor Variable overhead Total variable cost $0 $0 $0 Contribution margin Less: Fixed costs Operating profit

Answer 1

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