Gwinnett Barbecue Sauce Corporation manufactures a specialty barbecue sauce. Gwi
ID: 2654680 • Letter: G
Question
Gwinnett Barbecue Sauce Corporation manufactures a specialty barbecue sauce. Gwinnett has the capacity to manufacture and sell 20,000 cases of sauce each year but is currently only manufacturing and selling 18,000. The following costs relate to annual operations at 18,000 cases:
Gwinnett normally sells its sauce for $35 per case. A local school district is interested in purchasing Gwinnett's excess capacity of 2,000 cases of sauce but only if they can get the sauce for $18 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 $1,800
decrease by $2,000
decrease by $18,000
decrease by $12,000
Gwinnett Barbecue Sauce Corporation manufactures a specialty barbecue sauce. Gwinnett has the capacity to manufacture and sell 20,000 cases of sauce each year but is currently only manufacturing and selling 18,000. The following costs relate to annual operations at 18,000 cases:
Explanation / Answer
Total Cost per unit Variable manufacturing cost $288,000 16 Fixed manufacturing cost $64,000 Variable selling and administrative cost $54,000 3 Fixed selling and administrative cost $46,000 Total Cost 452000 Total Revenue= 18000*35 630000 Profit 178000 If order is accepted 2000*18 36000 Cost = 19*2000 38000 Decrease in Profit 2000 Profits will decrease by $ 2000
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