Question

Poppycrock, Inc., manufactures large crates of microwaveable popcorn that are typically sold to distributors. Its main factory has the capacity to manufacture and sell 35,000 crates per month. The following information is available for the factory.

Sales price per crate	$	25.00
Variable cost per crate:
Direct materials		5.50
Direct labor		10.50
Variable overhead		3.90
Fixed costs per month	$	103,000.00

Boys and Girls of Canada is a not-for-profit organization that raises funds each year by selling popcorn door-to-door. It offers to pay Poppycrock $22 per crate for a special-order batch of 5,000 crates. The special-order popcorn would include a unique label with information about the Boys and Girls of Canada. The additional cost of the label is estimated at $1.00 per crate. In addition, the variable overhead for these special-order crates would decrease by $0.50 because there would be no distribution costs.

a. What is the incremental cost of creating a normal crate of popcorn? A special-order crate of popcorn? (Round your answers to 2 decimal places.)

b-1. What is the impact on Poppycrock's monthly operating profit if it accepts the offer and it is producing and distributing 30,000 normal crates per month?

b-2. What is the opportunity cost of not accepting the offer?

c-1. What is the impact on Poppycrock's monthly operating profit if it accepts the offer and it is producing and selling 35,000 normal crates per month?

c-2. What is the opportunity cost of accepting the offer?

Answer 1

a. incremental cost of creating normal crate / Special Order of POPcorn
Particular		Amount
Direct Material	$5.50
Direct Labour	$10.50
Variable Overhead	$3.80
Incremental Normal Crate Cost	$19.80	$19.80
Additional Label Cost		$1.00
Decrase in Variable Overhead		-$0.50
Incremental Special orderCost		$20.30
b.1/b.2 Computation of Net Operating Income & opportunity Cost
	Normal Unit	Special Order Batch	Total
Units	30000	5000	35000
Selling Price/Crate	$25.00	$22.00
Less: Variable Cost/Crate	$19.80	$20.30
Contribution Margin/Crate	$5.20	$1.70
Total Contribution margin	$156,000.00	$8,500.00	$164,500.00
Less: Fixed Cost	$103,000.00		$103,000.00
Net Operating Income	$53,000.00	$8,500.00	$61,500.00
Net Operating Profit Increase by $8500
Opportunity cost for not accepting the special order would be $8500
c.1/c.2 Computation of Net Operating Income & opportunity Cost
	Normal Unit ( Without Special Order		Total
Units	35000		35000
Selling Price/Crate	25
Less: Variable Cost/Crate	19.8
Contribution Margin/Crate	5.2
Total Contribution margin	182000		$182,000.00
Less: Fixed Cost	103000		$103,000.00
Net Operating Income	79000		$79,000.00
Operating income with the Special			61500
Opportunity Cost of accepting the special order in case operating at full capacity			$17,500.00
				Operating Profit would be decrease by $17500, if accepting the special Order Batch