Poppycrock, Inc., manufactures large crates of microwaveable popcorn that are ty
ID: 2510090 • 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.
a. 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.)
b-1. 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?
b-2. What is the opportunity cost of not accepting the offer?
c-1. 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?
c-2. What is the opportunity cost of accepting the offer?
Sales price per crate $ 25.00 Variable cost per crate: Direct materials 5.50 Direct labor 10.50 Variable overhead 3.90 Fixed costs per month $ 103,000.00Explanation / Answer
a. incremental cost of creating normal crate / Special Order of POPcorn Particular Amount Direct Material $5.50 Direct Labour $10.50 Variable Overhead $3.80 Incremental Normal Crate Cost $19.80 $19.80 Additional Label Cost $1.00 Decrase in Variable Overhead -$0.50 Incremental Special orderCost $20.30 b.1/b.2 Computation of Net Operating Income & opportunity Cost Normal Unit Special Order Batch Total Units 30000 5000 35000 Selling Price/Crate $25.00 $22.00 Less: Variable Cost/Crate $19.80 $20.30 Contribution Margin/Crate $5.20 $1.70 Total Contribution margin $156,000.00 $8,500.00 $164,500.00 Less: Fixed Cost $103,000.00 $103,000.00 Net Operating Income $53,000.00 $8,500.00 $61,500.00 Net Operating Profit Increase by $8500 Opportunity cost for not accepting the special order would be $8500 c.1/c.2 Computation of Net Operating Income & opportunity Cost Normal Unit ( Without Special Order Total Units 35000 35000 Selling Price/Crate 25 Less: Variable Cost/Crate 19.8 Contribution Margin/Crate 5.2 Total Contribution margin 182000 $182,000.00 Less: Fixed Cost 103000 $103,000.00 Net Operating Income 79000 $79,000.00 Operating income with the Special 61500 Opportunity Cost of accepting the special order in case operating at full capacity $17,500.00 Operating Profit would be decrease by $17500, if accepting the special Order Batch