Spinach Company produces and sells 60,000 cans of spinach each year. The following information reflects...
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Accounting
Spinach Company produces and sells 60,000 cans of spinach each year. The following information reflects a breakdown of its costs:
Cost Item | Costs per Can | Total Costs |
Variable production costs | $10 | $600,000 |
Fixed production costs | $7 | $420,000 |
Variable selling costs | $4 | $240,000 |
Fixed selling and administrative costs | $2 | $120,000 |
Total costs | $23 | $1,380,000 |
Spinach marks up its prices 50% over full costs. It has surplus capacity to produce 25,000 more cans. A Finnish supermarket company has offered to purchase 15,000 cans of the product at a special price of $28 per can. Spinach will incur additional shipping and selling costs of $1 per can to complete this order.
Required: (a) What will be the effect on Spinach's operating income if it accepts this order? (b) Determine the incremental profit from accepting the order.
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