Bell Pepper Company produces and sells 50,000 bags of bell pepper slices each year. The...
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Accounting
Bell Pepper Company produces and sells 50,000 bags of bell pepper slices each year. The following information reflects a breakdown of its costs:
Cost Item | Costs per Bag | Total Costs |
Variable production costs | $13 | $650,000 |
Fixed production costs | $9 | $450,000 |
Variable selling costs | $4 | $200,000 |
Fixed selling and administrative costs | $2 | $100,000 |
Total costs | $28 | $1,400,000 |
Bell Pepper marks up its prices 50% over full costs. It has surplus capacity to produce 20,000 more bags. A Danish supermarket company has offered to purchase 12,000 bags of the product at a special price of $32 per bag. Bell Pepper will incur additional shipping and selling costs of $1 per bag to complete this order.
Required: (a) What will be the effect on Bell Pepper's operating income if it accepts this order? (b) Analyze the effect on the company's overall contribution margin.
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