Poppycrock, Inc., manufactures large crates of microwaveable popcorn that are ty
ID: 2425786 • Letter: P
Question
Poppycrock, Inc., manufactures large crates of microwaveable popcorn that are typically sold to distributors. Its main factory has the capacity to manufacture and sell 35,000 crates per month. The following information is available for the factory:
Boys and Girls of Canada is a not-for-profit organization that raises funds each year by selling popcorn door-to-door. It offers to pay Poppycrock $22 per crate for a special-order batch of 5,000 crates. The special-order popcorn would include a unique label with information about the Boys and Girls of Canada. The additional cost of the label is estimated at $1.00 per crate. In addition, the variable overhead for these special-order crates would decrease by $0.50 because there would be no distribution costs.
What is the incremental cost of creating a normal crate of popcorn? A special-order crate of popcorn?(Round your answers to 2 decimal places.)
What is the impact on Poppycrock's monthly operating profit if it accepts the offer and it is producing and distributing 30,000 normal crates per month. What is the opportunity cost of not accepting the offer?
What is the impact on Poppycrock's monthly operating profit if it accepts the offer and it is producing and selling 35,000 normal crates per month. What is the opportunity cost of accepting the offer?
Poppycrock, Inc., manufactures large crates of microwaveable popcorn that are typically sold to distributors. Its main factory has the capacity to manufacture and sell 35,000 crates per month. The following information is available for the factory:
Explanation / Answer
a. the incremental cost of creating a normal crate of popcorn = Direct Material cost = $5.50 + Direct Labor cost $10.50 + variable overhead $3.90 =$19.90
special-order crate of popcorn = Variable costs of normal crate = 19.90 + Additional costs $1 - decrease in Variable overhead $0.50 = $20.40
b-1) the impact on Poppycrock's monthly operating profit if it accepts the offer and it is producing and distributing 30,000 normal crates per month:
Total Monthly operating profit on accepting offer= (29-19.90) 30000 + (22-20.40) 5000 - $108000 = $173000
There is a increase of $8000 towards the operating profit on accepting the offer.
b-2) The opportunity cost for not accepting the offer = $173000 - [($9.10 * 35000) - $108000] = $173000 - $210500 = - $37500
c-1) the impact on Poppycrock's monthly operating profit if it accepts the offer and it is producing and selling 35,000 normal crates per month = $9.10 * 35000 - 108000 = $210500
There is a increase of $45500 towards the operating profit on producing and selling 35000 normal crates.
c-2) The opportunity cost for accepting the offer= [30000 * ($9.10 - 108000)] - $173000 = - $8000 .