Broccoli Company produces and sells 40,000 packs of broccoli florets each year. The following information...
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Accounting
Broccoli Company produces and sells 40,000 packs of broccoli florets each year. The following information reflects a breakdown of its costs:
Cost Item | Costs per Pack | Total Costs |
Variable production costs | $15 | $600,000 |
Fixed production costs | $8 | $320,000 |
Variable selling costs | $6 | $240,000 |
Fixed selling and administrative costs | $3 | $120,000 |
Total costs | $32 | $1,280,000 |
Broccoli marks up its prices 40% over full costs. It has surplus capacity to produce 20,000 more packs. A Polish supermarket company has offered to purchase 12,000 packs of the product at a special price of $36 per pack. Broccoli will incur additional shipping and selling costs of $2 per pack to complete this order.
Required: (a) What will be the effect on Broccoli's operating income if it accepts this order? (b) Prepare a detailed analysis of the incremental costs and benefits.
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