Question

Gwinnett Barbecue Sauce Corporation manufactures a specialty barbecue sauce. Gwinnett has the capacity to manufacture and sell 18,000 cases of sauce each year but is currently only manufacturing and selling 16,600. The following costs relate to annual operations at 16,600 cases:

	Total Cost
Variable manufacturing cost	$365,200
Fixed manufacturing cost	$62,000
Variable selling and administrative cost	$83,000
Fixed selling and administrative cost	$44,000

Gwinnett normally sells its sauce for $50 per case. A local school district is interested in purchasing Gwinnett's excess capacity of 1,400 cases of sauce but only if they can get the sauce for $25 per case. This special order would not affect regular sales or total fixed costs or variable costs per unit. If this special order is accepted, Gwinnett's profits for the year will:

increase by $140

decrease by $26,200

decrease by $33,200

decrease by $2,800

Answer 1

A)
Offer price by the school @ 25/case for 1400 cases						35000
Less: Variable Mfg.costs @ 22/case fo 1400 cases					30800
Less: Variable Sell.& admn.exp. @ 5/case fo 1400 cases					7000	37800
Decrease in profits						2800
ANSWER: D -		decrease by $2800

Note:			Per case
Variable Mfg.costs		365200/16600	22
Variable Sell.& admn.exp.		83000/16600	5

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