Maria\'s Food Service provides meals that nonprofit organizations distribute to
ID: 2582157 • 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 2,600 meals:
Fixed costs included in this income statement are $3,380 for meal production and $520 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 $3.30 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.)
Status Quo
2,600 units
Alternative
2,900 units
b. From an operating profit perspective for April, should Maria accept the order?
Amount Per Unit Sales revenue $ 14,560 $ 5.60 Costs of meals produced 11,180 4.30 Gross profit $ 3,380 $ 1.30 Administrative costs 1,300 0.50 Operating profit $ 2,080 $ 0.80Explanation / Answer
Status Quo 2,600 units Alternative 2,900 units Difference Sales Revenue 14560 15550 990 Higher Variable Cost: Meal 7800 8700 900 Higher Administrative 780 780 0 None Contribution margin 5980 6070 90 Higher Fixed cost 3900 3900 0 None Operating cost 2080 2170 90 Higher Yes accept the order