Watermelon Company produces and sells 20,000 containers of watermelon cubes each year. The following information...
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Accounting
Watermelon Company produces and sells 20,000 containers of watermelon cubes each year. The following information reflects a breakdown of its costs:
Cost Item | Costs per Container | Total Costs |
Variable production costs | $18 | $360,000 |
Fixed production costs | $10 | $200,000 |
Variable selling costs | $7 | $140,000 |
Fixed selling and administrative costs | $5 | $100,000 |
Total costs | $40 | $800,000 |
Watermelon marks up its prices 35% over full costs. It has surplus capacity to produce 10,000 more containers. A Brazilian supermarket company has offered to purchase 8,000 containers of the product at a special price of $45 per container. Watermelon will incur additional shipping and selling costs of $2 per container to complete this order.
Required: (a) What will be the effect on Watermelon's operating income if it accepts this order? (b) Analyze the impact on the company's overall profitability.
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