Question

Assume that MTA Sandwiches sells sandwiches for $3.25 each. The cost of each sandwich follows: Materials...

Assume that MTA Sandwiches sells sandwiches for $3.25 each. The cost of each sandwich follows:

Materials $ 1.10
Labor 0.30
Variable overhead 0.30
Fixed overhead ($24,840 per month, 21,600 units per month) 1.15
Total cost per sandwich $ 2.85


One of MTA's regular customers asked the company to fill a special order of sandwiches at a selling price of $2.10 each for a fund-raising event sponsored by a social club at the local college. MTA has capacity to fill it without affecting total fixed costs for the month. MTA's general manager was concerned about selling the sandwiches below the cost of $2.85 per sandwich and has asked for your advice.

Required:

a. Prepare a schedule to show the impact on MTA's profits of providing 600 sandwiches in addition to the regular production and sales of 21,600 sandwiches per month. (Select option "higher" or "lower", keeping Status Quo as the base. Select "None" if there is no effect.)

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Answer #1

a.

21600 Units 22200 Units Difference
Sales revenue 21600*$3.25 = $70,200 (21600*$3.25) + (600*$2.10) = $71,460 $1,260
Less: Variable cost
Materials 21600*$1.10 = $23,760 22200*$1.10 = $24,420 $(660)
Labor 21600*$0.30 = $6480 22200*$0.30 = $6660 $(180)
Variable overhead 21600*$0.30 = $6480 22200*$0.30 = $6660 $(180)
Total variable cost $36,720 $37,740 $(1,020)
Contribution margin $33,480 $33,720 $240
Less: Fixed costs $24840 $24840 $0  
Operation profit $8,640 $8,880 $240
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