Grape Company produces and sells 45,000 bottles of grape juice each year. The following information...
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Accounting
Grape Company produces and sells 45,000 bottles of grape juice each year. The following information reflects a breakdown of its costs:
Cost Item | Costs per Bottle | Total Costs |
Variable production costs | $14 | $630,000 |
Fixed production costs | $10 | $450,000 |
Variable selling costs | $5 | $225,000 |
Fixed selling and administrative costs | $4 | $180,000 |
Total costs | $33 | $1,485,000 |
Grape marks up its prices 40% over full costs. It has surplus capacity to produce 20,000 more bottles. A Chinese supermarket company has offered to purchase 10,000 bottles of the product at a special price of $38 per bottle. Grape will incur additional shipping and selling costs of $2 per bottle to complete this order.
Required: (a) What will be the effect on Grape's operating income if it accepts this order? (b) Prepare a detailed analysis of the incremental costs and benefits.
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