Blueberry Company produces and sells 50,000 jars of jam each year. The following information reflects...
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Accounting
Blueberry Company produces and sells 50,000 jars of jam each year. The following information reflects a breakdown of its costs:
Cost Item | Costs per Jar | Total Costs |
Variable production costs | $10 | $500,000 |
Fixed production costs | $6 | $300,000 |
Variable selling costs | $4 | $200,000 |
Fixed selling and administrative costs | $2 | $100,000 |
Total costs | $22 | $1,100,000 |
Blueberry marks up its prices 50% over full costs. It has surplus capacity to produce 20,000 more jars. A Canadian supermarket company has offered to purchase 12,000 jars of the product at a special price of $28 per jar. Blueberry will incur additional shipping and selling costs of $2 per jar to complete this order.
Required: (a) What will be the effect on Blueberry's operating income if it accepts this order? (b) Prepare an incremental analysis for the decision.
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