Question

Maria's Food Service provides meals that nonprofit organizations distribute to handicapped and elderly people. Here is her forecasted income statement for April, when she expects to produce and sell 3,200 meals:

Amount Per Unit Sales revenue $ 19,840 $ 6.20

Costs of meals produced 14,720 4.60

Gross profit $ 5,120 $ 1.60

Administrative costs 2,240 0.70

Operating profit $ 2,880 $ 0.90

Fixed costs included in this income statement are $5,120 for meal production and $640 for administrative costs. Maria has received a special request from an organization sponsoring a picnic to raise funds for the Special Olympics. This organization is willing to pay $3.60 per meal for 300 meals on April 10. Maria has sufficient idle capacity to fill this special order.

These meals will incur all of the variable costs of meals produced, but variable administrative costs and total fixed costs will not be affected. Required: a. What impact would accepting this special order have on operating profit? (Select option "higher" or "lower", keeping Status Quo as the base. Select "none" if there is no effect.)

	3200 Units	3500 Units	Difference	higher or lower
sales revenue
Variable Cost:
Meals
Administrative
Contribution Margin
Fixed Cost
Operating Cost

From an operating profit perspective for April, should Maria accept the order? Yes No

Answer 1

	Given that-		Total unit	per unit
			3200
	Sales revenue		19,840	6.2
	Costs of meals produced		14,720	4.6
	Fixed	5,120		1.60
Note A	Variable	9,600		3.00
	Gross profit		5,120	2
	Administrative costs		2240
	Fixed	640		0.2
Note B	Variable	1600		0.5
	Operating profit		2,880	0.9
Note C	Total fixed cost =	5,760
		3200 Units		3500 Units		Difference	higher or lower
	Particular	Working	Amt	Working	Amt
i	sales revenue	=3200*6.2	19840	=3200*6.2+300*3.6	20920	1080	higher
	Variable Cost:
ii	Meals	=3200*3	9600	=3500*3	10500	900	higher
iii	Administrative	=3200*0.5	1600	=3500*0.5	1750	150	higher
iv=i-ii-iii	Contribution Margin		8640		8670	30	higher
v	Fixed Cost		5,760		5,760	0	None
vi=iv-v	Operating profit		2,880		2,910	30	higher
	As operating profit will increase by 30 due to accepting this offer hence, Maria should accept this offer.