Carrot Company produces and sells 50,000 bags of carrot chips each year. The following information...
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Accounting
Carrot Company produces and sells 50,000 bags of carrot chips each year. The following information reflects a breakdown of its costs:
Cost Item | Costs per Bag | Total Costs |
Variable production costs | $12 | $600,000 |
Fixed production costs | $7 | $350,000 |
Variable selling costs | $5 | $250,000 |
Fixed selling and administrative costs | $3 | $150,000 |
Total costs | $27 | $1,350,000 |
Carrot marks up its prices 45% over full costs. It has surplus capacity to produce 20,000 more bags. A Swiss supermarket company has offered to purchase 15,000 bags of the product at a special price of $30 per bag. Carrot will incur additional shipping and selling costs of $1.50 per bag to complete this order.
Required: (a) What will be the effect on Carrot's operating income if it accepts this order? (b) Calculate the impact on the company's overall profitability.
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