Question

Blossom Packaging Company is a leading manufacturer of cardboard boxes and other product packaging solutions. One of the company’s major product lines is custom-printed cake boxes that are sold to some of the country’s best known bakeries at a price of $0.50 per box. To maintain its high-quality image, Blossom uses a thick premium coated paper for all of its cake boxes. Based on annual production of 1,000,000 boxes, Blossom’s cost for producing a box is as follows:

Paper		$0.13
Ink		0.05
Direct labor		0.05
Variable overhead		0.07
Fixed overhead		0.10
Total cost per box		$0.40

Nancy Jackson, a recent graduate of the Culinary Institute of America, is opening a new bakery in her hometown. She recently contacted Brad Lail, Blossom’s top salesperson, about purchasing cake boxes for her new store. Brad described Blossom’s boxes, emphasizing the high-quality paper and the unique printing process the company uses. Andrea is looking for ways to lower her operating costs, so after hearing Brad describe Blossom’s boxes, she told him that all she needed was a simple, unprinted box. Andrea also told Brad that she needs 9,000 boxes and is willing to pay $0.24 per box.

(a) Based on Andrea’s offer of $0.24 per box for an unprinted box, should Blossom accept Andrea’s order? Blossom currently has excess production capacity and can easily accommodate Andrea’s order in the production schedule.

Blossom select an option                                                          should notshould accept the order.

(b) Since Andrea wants a simple box, Brad is exploring using a lighter-weight paper for her boxes. He has found a suitable paper that will cost $0.08 per box. If Blossom uses this lighter-weight paper for Andrea’s boxes, should the company accept Andrea’s order at a price of $0.24 per box? Blossom currently has excess production capacity and can easily accommodate Andrea’s order in the production schedule.

Blossom select an option                                                          shouldshould not accept the order.

(c) After visiting with Andrea, Brad received a fax from one of London’s top bakeries. The bakery’s normal box supplier suffered some fire damage and is unable to ship the bakery’s order of 9,000 boxes this month. The bakery’s owner is asking if Blossom can fill a onetime rush order of 9,000 boxes printed with the bakery’s logo. The bakery is willing to pay a 10% price premium to expedite the order. If Blossom accepts the order, it will incur $796 in export taxes and shipping.

Calculate the Profit on special order.

Profit on special order

$enter the profit on special order in dollars

Should Blossom accept the London bakery’s offer?

Blossom select an option                                                          should not/should accept the special order.

Answer 1

(a) Based on Andrea’s offer of $0.24 per box for an unprinted box, should Blossom accept Andrea’s order? Blossom currently has excess production capacity and can easily accommodate Andrea’s order in the production schedule.

Paper	$   0.13
Inc	$   0.05
Direct Labor	$   0.05
variable overhead	$   0.07
Relevant cost per box	$   0.30

Andrea's offer $0.24 per box which is less than Relevant cost per box

Hence Blossom should not accept the order

(b) Since Andrea wants a simple box, Brad is exploring using a lighter-weight paper for her boxes. He has found a suitable paper that will cost $0.08 per box. If Blossom uses this lighter-weight paper for Andrea’s boxes, should the company accept Andrea’s order at a price of $0.24 per box? Blossom currently has excess production capacity and can easily accommodate Andrea’s order in the production schedule.

Paper	$   0.08
Inc	$   0.05
Direct Labor	$   0.05
variable overhead	$   0.07
Relevant cost per box	$   0.25

Andrea's offer $0.24 per box which is less than Relevant cost per box

Hence Blossom should not accept the order

(c)After visiting with Andrea, Brad received a fax from one of London’s top bakeries. The bakery’s normal box supplier suffered some fire damage and is unable to ship the bakery’s order of 9,000 boxes this month. The bakery’s owner is asking if Blossom can fill a onetime rush order of 9,000 boxes printed with the bakery’s logo. The bakery is willing to pay a 10% price premium to expedite the order. If Blossom accepts the order, it will incur $796 in export taxes and shipping. Calculate the Profit on special order.

Sale price (9000 * $0.50 * 110%)	$ 4,950
Less: Relevant cost (9000 * $0.30)	$ 2,700
Less: Export taxes & shipping	$    796
Profit on special order	$ 1,454

Should Blossom accept the London bakery’s offer?

YES