Question

Dawson Company produces and sells 80,000 boxes of specialty foods each year. Each box contains the same assortment of food. The company has computed the following annual? costs:

Cost Item	Total Costs
Variable production costs	$400,000
Fixed production costs	480,000
Variable selling costs	320,000
Fixed selling and administrative costs	200,000
Total costs	$1,400,000

DawsonDawson normally charges $ 25 per box. A new distributor has offered to purchase 8,000 boxes at a special price of $ 22 per box.Dawson will incur additional packaging costs of $1

per box to complete this order.

Requirements

?(a)Suppose	Dawson has surplus capacity to produce 8,000 more boxes. What will be the effect on Dawson?'s income if it accepts this? order?
?(b)	(b) Suppose that instead of having surplus capacity to produce 8,000 more? boxes,Dawson has surplus capacity to produce only 3,000 more boxes. What will be the effect on Dawson?'s income if it accepts the new order for 8,000 ?boxes?

Requirement? (a) Suppose Dawson has surplus capacity to produce 8,000 more boxes. What will be the effect on Dawson?'s income if it accepts this? order?

Select the items that are relevant if the order is? accepted, then calculate the effect on income. ?Fill the boxes in the table with the $ amounts.

Total Additional Packing Cost	= $-----------------
Total incremental fixed cost	=$----------------
Total incremental revenue	=$-----------------
Total incremental variable cost	=$-----------------

$-------------------- in income $--------------

Answer 1

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Requirment a
Total Additional Packing Cost	8000*1	-8000
Total incremental fixed cost		0
Total incremental revenue	8000*22	176000
Total incremental variable cost	8000*(4+5)	-72000
Net Increase in Income		96000
Total incremental variable cost:
	Total	Per Unit
Variable Production Cost	400000	5
Variable Selling Cost	320000	4
Requirment b
		3000 Units	5000 Units
Total Additional Packing Cost	3000*1	-3000	-5000	5000*1
Total incremental fixed cost		0	0
Total incremental revenue	3000*22	66000	-15000	5000(22-25)
Total incremental variable cost	3000*(4+5)	-27000	0
Net Increase in Income		36000	-20000
Total Increase in income	36000-20000	16000