A company buys dough at a cost of $150 and processes it into a usable form at a

Question

A company buys dough at a cost of $150 and processes it into a usable form at a cost of $125. A load of each of the following types of dough can be sold at this point to another bakery/pizzeria at the following rates:

Type A Dough (Pizza Material):                                 $600

Type B Dough (Breadsticks Material):                       $300

Type C Dough (Calzones Material):                           $700

Alternatively, this dough can be further processed and turned into food items. A load of Type A Dough can be further processed for a cost of $3 per pizza and combined with $5 of other materials per pizza to make 50 pizzas which sell for $19 each. A load of Type B Dough can be further processed for a cost of $6 per set of breadsticks and combined with $1 of other materials per set of breadsticks to make 100 sets of breadsticks which sell for $11 each. A load of Type C Dough can be further processed for a cost of $1 per Calzone and combined with $5 of other materials per Calzone to make 35 Calzones which retail for $21.

The company is deciding whether to sell each of the three different types of dough to another bakery/pizzeria or to process them further into the final food products. Out of Type A, Type B, and Type C Dough, which should be sold as is to another bakery/pizzeria and which should be processed further into pizza, breadsticks, and calzones, respectively? Show all of your calculations.

A company provided the following information about its product.                                                                                                                                Per unit                      Total

            Revenue                                                           $60.00                      $1,200,000

Direct Labor                                                  $10.00                        $200,000

            Direct Materials                                             $5.00                           $100,000

            Variable factory overhead                           $8.00                           $160,000

            Fixed Factory Overhead                               $4.50                           $90,000

            Variable S&A expenses                                $2.50                           $50,000

            Fixed S&A expenses                                     $3.00                           $60,000

           

Assuming the factory has plenty of extra capacity, what would be the effect on operating income of accepting an offer for a special order of 3,000 units at $36 per unit? Show all of your calculations.

Explanation / Answer

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Revenue                                             36.00 Variable cost Direct Labor                           10.00             Direct Materials                          5.00             Variable factory overhead                 8.00             Variable S&A expenses                     2.50 Total            25.50 Contribution per unit            10.50 Units      3,000.00 Increased income    31,500.00

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