Maria\'s Food Service provides meals that nonprofit organizations distribute to
ID: 2423372 • 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 .70 Operating profit $ 2,880 $ .90 Fixed costs included in this income statement are $4,864 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? b. From an operating profit perspective for April, should Maria accept the order? Yes No Could you list steps as well so I can understand every number
Explanation / Answer
A Amount per unit Cost and revenue per unit for special order-Relevant Amount for 300 units Total Sales Revenue $19,840 $6.2 3.6 1080 Cost of Meals- Variable 9856 $3.1 3.1 930 Cost of Meals- Fixed 4864 $1.5 not affected Gross Profit $5,120 Administrative Cost Variable 1600 $0.5 not affected Fixed Cost 640 $0.2 not affected Opearting Profit $2,880 $0.9 150 $3,030 Ans No. of units 3200 Cost of Meals 14720 Less: Fixed cost 4864 Variable Cost of Meal 9856 Administrative Expenses 2240 Less: Fixed cost 640 Variable Cost 1600 b) Yes, special order can be accepted as there is profit of $.5 on each unit totalling $150 for 300 units taking relevant cost (3,6-3.1)