Tomato Company produces and sells 30,000 cans of tomato sauce each year. The following information...
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Accounting
Tomato Company produces and sells 30,000 cans of tomato sauce each year. The following information reflects a breakdown of its costs:
Cost Item | Costs per Can | Total Costs |
Variable production costs | $14 | $420,000 |
Fixed production costs | $9 | $270,000 |
Variable selling costs | $5 | $150,000 |
Fixed selling and administrative costs | $4 | $120,000 |
Total costs | $32 | $960,000 |
Tomato marks up its prices 50% over full costs. It has surplus capacity to produce 10,000 more cans. An Irish supermarket company has offered to purchase 8,000 cans of the product at a special price of $36 per can. Tomato will incur additional shipping and selling costs of $2 per can to complete this order.
Required: (a) What will be the effect on Tomato's operating income if it accepts this order? (b) Determine the incremental profit from accepting the order.
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