Carrot Company produces and sells 50,000 bags of carrot chips each year. The following information...
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Accounting
Carrot Company produces and sells 50,000 bags of carrot chips each year. The following information reflects a breakdown of its costs:
Cost Item
Costs per Bag
Total Costs
Variable production costs
$12
$600,000
Fixed production costs
$7
$350,000
Variable selling costs
$5
$250,000
Fixed selling and administrative costs
$3
$150,000
Total costs
$27
$1,350,000
Carrot marks up its prices 45% over full costs. It has surplus capacity to produce 20,000 more bags. A Swiss supermarket company has offered to purchase 15,000 bags of the product at a special price of $30 per bag. Carrot will incur additional shipping and selling costs of $1.50 per bag to complete this order.
Required: (a) What will be the effect on Carrot's operating income if it accepts this order? (b) Calculate the impact on the company's overall profitability.
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