Maria\'s Food Service provides meals that nonprofit organizations distribute to
ID: 2334567 • Letter: M
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.)
From an operating profit perspective for April, should Maria accept the order? Yes No
3200 Units 3500 Units Difference higher or lower sales revenue Variable Cost: Meals Administrative Contribution Margin Fixed Cost Operating CostExplanation / Answer
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.