9· value: 6.00 points Gwinnett Barbecue Sauce Corporation manufactures a special

Question

9· value: 6.00 points Gwinnett Barbecue Sauce Corporation manufactures a specialty barbecue sauce. Gwinnett has the capacity to manufacture and sell 13,500 cases of sauce each year but is currently only manufacturing and selling 12,600. The following costs relate to annual operations at 12,600 cases: Total Cost Variable manufacturing cost Flxed manufacturing cost Variable selling and administrative cost Flxed selling and administrative cost $176,400 $52,000 $37800 $34,000 Gwinnett normally sells Its sauce for $25 per case. A local school district is interested in purchasing Gwinnett's excess capacity of 900 cases of sauce but only if they can get the sauce for $16 per case. This special order would not affect regular sales or total fixed costs or variable costs per unlt. If this special order is accepted, Gwinnett's profits for the year will: decrease by $9,900 O decrease by $12,600 increase by $120 O decrease by $900

Explanation / Answer

Answer:-If this special order is accepted, Gwinnett’s profits for the year will decrease by $900.

Explanation:- Total variable cost of company =Variable manufacturing cost+ Variable selling & administrative cost

=$176400+$37800 = $214200

Variable cost per case =$214200/12600 cases =$17 per case

Offer price from customer =$16 per case

Hence variable cost per case (ie-$17) is greater than offer price (ie-$16), if the special ordre is accepted profit will decrease from $900 (ie-$17 -$16)*900.

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