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2-45 Profitability opportunity cost

2-45 Profitability opportunity cost
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MANAGEMENT ACCOUNTING
Management Accounting (Atkinson), 5th Edition
2-45 (Profitability opportunity cost) Dawson Company produces and sells 80,000 boxes of specialty foods each year. Each box contains the same assortment of food. The company has computed the following annual costs.

Cost Item Total Costs
Variable Production costs $400,000
Fixed Production costs 480,000
Variable selling costs 320,000
Fixed selling and admin costs 200,000
Total costs $1,400,000

Dawson normally charges $25 per box. A new distributor has offered to purchase 8,000 boxes at a special price of $22 per box. Dawson will incur additional packaging costs of $1 per box to complete this order.

* A) Suppose Dawson has a surplus capacity to produce 8,000 more boxes. What will be the effect on Dawson's income if it accepts this order?
* B) Suppose that instead of having surplus capacity to produce 8,000 more boxes. Dawson has surplus capacity to produce only 3,000 more boxes. What will be the effect on Dawson's income if it accepts the new order for 8,000 boxes?

 

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