Peach Company produces and sells 25,000 jars of peach preserves each year. The following information...
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Accounting
Peach Company produces and sells 25,000 jars of peach preserves each year. The following information reflects a breakdown of its costs:
Cost Item | Costs per Jar | Total Costs |
Variable production costs | $18 | $450,000 |
Fixed production costs | $10 | $250,000 |
Variable selling costs | $7 | $175,000 |
Fixed selling and administrative costs | $5 | $125,000 |
Total costs | $40 | $1,000,000 |
Peach marks up its prices 30% over full costs. It has surplus capacity to produce 10,000 more jars. An Australian supermarket company has offered to purchase 8,000 jars of the product at a special price of $42 per jar. Peach will incur additional shipping and selling costs of $2 per jar to complete this order.
Required: (a) What will be the effect on Peach's operating income if it accepts this order? (b) Determine the incremental profit from accepting the order.
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