2. Special Order Clearwater Company operates a wine outlet in a tourist area. On

Question

2. Special Order Clearwater Company operates a wine outlet in a tourist area. One gallon bottles sell for $12 each. Variable manufacturing costs are $6 per gallon. Fixed costs total $3,000 per day. Regular demand has been 750 gallons per day. Clearwater has the capacigty to sell a maximum of 800 gallons per day. REQUIRED A. What is the total manufacturing cost per gallon? B. A bus loaded with 40 senior citizens stops by at closing time and the tour director offers to purchase 40 gallons for $7.50 per gallon. Clearwater, believing that they would incur a loss of $2.50 per gallon, refuses the special order. Should the special order of 40 gallons be accepted? Was Clearwater correct about losing $2.50 per gallon? Why or why not? A fund-raising organization has offered to make a one-time purchase of 300 gallons of wine from Clearwater for $7.50 per gallon. Should Clearwater accept the special order of 300 gallons? Why or why not? C.

Explanation / Answer

Fixed cost = 3000/800= 3.75

Total cost per gallon is

Variable cost = 6

Fixed cost = 3.75

total =    9.75

b. if each gallon is sold at 7.5 then it will be 2.25 loss not 2.5 so the offer shouldnt be accepted

c. it should not accept the offer because it will incur loss of 2.25 per gallon sold which will raise to 675 for 300 gallons

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