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Green Grow Inc. (GGI) manufactures lawn fertilizer. Because of the products very high quality, GGI often receives special orders from agricultural research groups. For each type of fertilizer sold, each bag is carefully filled to have the precise mix of components advertised for that type of fertilizer. GGIs operating capacity is 22,000 one-hundred-pound bags per month, and it currently is selling 20,000 bags manufactured in 20 batches of 1,000 bags each. The firm just received a request for a special order of 5,000 one-hundred-pound bags of fertilizer for $130,000 from APAC, a research organization. The production costs would be the same, but there would be no variable selling costs. Delivery and other packaging and distribution services would cause a one-time $2,500 cost for GGI. The special order would be processed in two batches of 2,500 bags each. (No incremental batch-level costs are anticipated. Most of the batch-level costs in this case are short-term fixed costs, such as salaries and depreciation.) The following information is provided about GGIs current operations: Sales and production cost data for 20,000 bags, per bag: Sales price $ 40 Variable manufacturing costs 17 Variable selling costs 3 Fixed manufacturing costs 12 Fixed marketing costs 4 No marketing costs would be associated with the special order. Because the order would be used in research and consistency is critical, APAC requires that GGI fill the entire order of 5,000 bags.

4. Prepare comparative income statements, using the contribution format, for both the current situation and assuming the special order is accepted at the break-even price determined in requirement 3.

Current Situation Current Situation + Special Sales Order Sales: Regular $ Special order Less: Variable costs: Manufacturing Marketing Contribution margin Less: Fixed costs: Manufacturing Marketing One-time packing/delivery Operating income

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