Pineapple Company produces and sells 60,000 cans of pineapple slices each year. The following information...
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Accounting
Pineapple Company produces and sells 60,000 cans of pineapple slices each year. The following information reflects a breakdown of its costs:
Cost Item | Costs per Can | Total Costs |
Variable production costs | $16 | $960,000 |
Fixed production costs | $7 | $420,000 |
Variable selling costs | $5 | $300,000 |
Fixed selling and administrative costs | $3 | $180,000 |
Total costs | $31 | $1,860,000 |
Pineapple marks up its prices 50% over full costs. It has surplus capacity to produce 20,000 more cans. A Korean supermarket company has offered to purchase 15,000 cans of the product at a special price of $35 per can. Pineapple will incur additional shipping and selling costs of $1.50 per can to complete this order.
Required: (a) What will be the effect on Pineapple's operating income if it accepts this order? (b) Analyze the effect on the company's overall contribution margin.
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