Maria s food Service provides meals that nonprofit organizations distribute to h
ID: 2359019 • Letter: M
Question
Maria s food Service provides meals that nonprofit organizations distribute to handicapped and elderly people. Here is her forecast-ed income statement for April. when she expects to product and sell 4,000 meals: Amount Per unit sales revenue..............................$20,000 $5.00 cost of meals product...............$16,000 4.00 Gross profit..................................$4,000 $ 1,00 Administrative costs ..................2,000 0.50 Opening profit...............$2,000 $0.50 Fixed cost included in this income statement are $6,000 for meal production and $1,000 for administrative cost.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 $3.50 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 product, but variable administrative costs and total fixed costs will not be affected. Required What impact would accepting this special order have an operating profit? ( CPA adapted)From: undefined
Source:ISBN: 0077274997 | Title: Fundamentals of Cost Accounting | Publisher: McGraw-Hill Higher Education
Explanation / Answer
Maria Profit will increase by $225 if she undertakes new offer
Calculations
Sales 300@3.5 = 1050
Cost of Food 300@2.5 = 750 (total was 16,000 for 4,000 but 6,000 was fixed so 10,000 / 4000 = 2.5)
Admin cost 300@0.25 = 75 (total was 2000 out of which 1000 was fixed so 1000/4000 = 0.25
Profit = 225