Gooding Foods makes Goody-Goody brand peanut butter. The cost to make each jar i

Question

Gooding Foods makes Goody-Goody brand peanut butter. The cost to make each jar is $2.05 and consists of the following:

Direct Materials $1.00

Direct Labor $0.25

Variable Overhead 0.30

Fixed overhead 0.50

A grocery store chain wants to puchase a generic brand peanut butter from Gooding and is willing to pay $1.05 per jar. The generic peanut butter will be made using a different recipe, lowering the direct materials cost to $0.80 per jar. Gooding can produce this special order using excess capacity; therefore fixed costs will not increase. Use differential analysis to determine whether Gooding should accept this special order.

Explanation / Answer

Differential Analysis:

Accepting Order:

Profit per Jar = Selling Price - Cost

= $1.05 - $1.35

= -$0.30

It is better not to accept the special order.

Particulars Goody Goody Brand Peanut Butter Generic Peanut Butter Direct Material $1.00 $0.80 Direct Labour $0.25 $0.25 Variable Overhead $0.30 $0.30 Fixed Overhead $0.50 - Total Cost Per Unit $2.05 $1.35

Related Questions

Navigate

• Browse (All)
• Browse G
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.