Cucumber Company produces and sells 45,000 jars of pickles each year. The following information reflects...
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Accounting
Cucumber Company produces and sells 45,000 jars of pickles each year. The following information reflects a breakdown of its costs:
Cost Item | Costs per Jar | Total Costs |
Variable production costs | $11 | $495,000 |
Fixed production costs | $8 | $360,000 |
Variable selling costs | $5 | $225,000 |
Fixed selling and administrative costs | $3 | $135,000 |
Total costs | $27 | $1,215,000 |
Cucumber marks up its prices 40% over full costs. It has surplus capacity to produce 15,000 more jars. A Belgian supermarket company has offered to purchase 10,000 jars of the product at a special price of $30 per jar. Cucumber will incur additional shipping and selling costs of $1.50 per jar to complete this order.
Required: (a) What will be the effect on Cucumber's operating income if it accepts this order? (b) Prepare a detailed analysis of the incremental costs and benefits.
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