Question

In: Accounting

Assume that MTA Sandwiches sells sandwiches for $3.40 each. The cost of each sandwich follows: Materials...

Assume that MTA Sandwiches sells sandwiches for $3.40 each. The cost of each sandwich follows:

Materials $ 0.70
Labor 0.70
Variable overhead 0.30
Fixed overhead ($19,580 per month, 17,800 units per month) 1.10
Total cost per sandwich $ 2.80


One of MTA's regular customers asked the company to fill a special order of sandwiches at a selling price of $2.30 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 $2.80 per sandwich and has asked for your advice.

Required:

a. Prepare a schedule to show the impact on MTA's profits of providing 800 sandwiches in addition to the regular production and sales of 17,800 sandwiches per month. (Select option "higher" or "lower", keeping Status Quo as the base. Select "None" if there is no effect.)

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? (Round your answer to 2 decimal places.)

Solutions

Expert Solution

a. Prepare a schedule to show the impact on MTA's profits of providing 800 sandwiches in addition to the regular production and sales of 17,800 sandwiches per month.

17800 units 18600 units Difference
Sales (17800*$3.40)= $60520 (17800*$3.40+800*$2.30)= $62360 (62360-60520)= 1840 higher
Less: Variable costs:
Materials (17800*$0.70)= 12460 (18600*$0.70)= 13020 (13020-12460)= 560 higher
Labor (17800*$0.70)= 12460 (18600*$0.70)= 13020 (13020-12460)= 560 higher
Variable overhead (17800*$0.30)= 5340 (18600*$0.30)= 5580 (5580-5340)= 240 higher
Total variable costs 30260 31620 1360 higher
Contribution margin 30260 30740 480 higher
Less: Fixed costs 19580 19580 0 None
Net operating income (loss) $10680 $11160 480 higher

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?

Materials $0.70
Labor 0.70
Variable overhead 0.30
Lowest price per sandwich $1.70

ekkarill92 answered 2 years ago
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