Question

Poppycrock, Inc., manufactures large crates of microwaveable popcorn that are typically sold to distributors. Its main factory has the capacity to manufacture and sell 35,000 crates per month. The following information is available for the factory.

Sales price per crate	$	25.00
Variable cost per crate:
Direct materials		5.50
Direct labor		10.50
Variable overhead		3.90
Fixed costs per month	$	106,000.00

Boys and Girls of Canada is a not-for-profit organization that raises funds each year by selling popcorn door-to-door. It offers to pay Poppycrock $22 per crate for a special-order batch of 5,000 crates. The special-order popcorn would include a unique label with information about the Boys and Girls of Canada. The additional cost of the label is estimated at $1.00 per crate. In addition, the variable overhead for these special-order crates would decrease by $0.50 because there would be no distribution costs.

a. What is the incremental cost of creating a normal crate of popcorn? A special-order crate of popcorn? (Round your answers to 2 decimal places.)

b-1. What is the impact on Poppycrock's monthly operating profit if it accepts the offer and it is producing and distributing 30,000 normal crates per month?

b-2. What is the opportunity cost of not accepting the offer?

c-1. What is the impact on Poppycrock's monthly operating profit if it accepts the offer and it is producing and selling 35,000 normal crates per month?

c-2. What is the opportunity cost of accepting the offer?

a.	Incremental unit cost of creating a normal crate
	Incremental unit cost of creating a special-order crate
b-1.	Impact on operating profit
b-2.	Opportunity cost
c-1.	Impact on operating profit
c-2.	Opportunity cost

Answer 1

working
		Current relevant cost	Special order cost
	Sales price S	$25	$22
	Less:
	Direct materials	$5.50	$5.50
	Direct labor	10.5	10.5
	Variable overhead	3.9	3.4
	Additional label cost		$1
	Total variable cost C	$19.90	$20.40
	Contribution margin S-C	$5.10	$1.60
a.	Incremental unit cost of creating a normal crate	$19.90
	Incremental unit cost of creating a special-order crate	$20.40
b-1.	Impact on operating profit (5000*1.6)	$8,000	Increase in profit
b-2.	Opportunity cost	$8,000	It is same as there wont be increase in operating profit
c-1.	Impact on operating profit
	(5000*5.1)-(5000*1.6)	($17,500.00)	Decrease in profit
c-2.	Opportunity cost (5000*(5.1-1.6))	-17500	It is same as the decrease in profit
If negative sign is allowed use it elso do not use it
If any doubt please comment.