Question

Assume that MTA Sandwiches sells sandwiches for $3.75 each. The cost of each sandwich follows:

Materials	$	1.10
Labor		0.40
Variable overhead		0.50
Fixed overhead ($22,540 per month, 19,600 units per month)		1.15
Total cost per sandwich	$	3.15

One of MTA's regular customers asked the company to fill a special order of sandwiches at a selling price of $2.60 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 $3.15 per sandwich and has asked for your advice.

Required:

a. Prepare a schedule to show the impact on MTA's profits of providing 500 sandwiches in addition to the regular production and sales of 19,600 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.)

Answer 1

a. Prepare a schedule to show the impact on MTA's profits of providing 500 sandwiches in addition to the regular production and sales of 19,600 sandwiches per month.

Answer:

	Status Quo 19,600 units	Alternative 20,100 units	Difference
Sales revenue	73500	74800	1300
Less Variable costs
Material	21560	22110	550
labor	7840	8040	200
Variable overhead	9800	10050	250
Contribution margin	34300	34600	300
Less fixed costs	22540	22540	0
Operating profit	11760	12060	300

Working notes for the above answer is as under

____________________________________________________________________________

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?

Answer:

Lowest price

= (Materials 1.1+ Labor .40 + Variable overhead .50)

= $2

Material	1.1
labor	0.4
Variable overhead	0.5
Lowest price	2

Lowest price =2