Strawberry Company produces and sells 60,000 cans of strawberry puree each year. The following information...
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Accounting
Strawberry Company produces and sells 60,000 cans of strawberry puree each year. The following information reflects a breakdown of its costs:
Cost Item | Costs per Can | Total Costs |
Variable production costs | $14 | $840,000 |
Fixed production costs | $9 | $540,000 |
Variable selling costs | $5 | $300,000 |
Fixed selling and administrative costs | $4 | $240,000 |
Total costs | $32 | $1,920,000 |
Strawberry marks up its prices 45% over full costs. It has surplus capacity to produce 30,000 more cans. A Japanese supermarket company has offered to purchase 20,000 cans of the product at a special price of $36 per can. Strawberry will incur additional shipping and selling costs of $3 per can to complete this order.
Required: (a) What will be the effect on Strawberry's operating income if it accepts this order? (b) Prepare a detailed analysis of the incremental costs and benefits.
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