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Cherry Company produces and sells 55,000 jars of cherry jam each year. The following information...

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Accounting

Cherry Company produces and sells 55,000 jars of cherry jam each year. The following information reflects a breakdown of its costs:

Cost Item

Costs per Jar

Total Costs

Variable production costs

$11

$605,000

Fixed production costs

$8

$440,000

Variable selling costs

$4

$220,000

Fixed selling and administrative costs

$3

$165,000

Total costs

$26

$1,430,000

Cherry marks up its prices 45% over full costs. It has surplus capacity to produce 20,000 more jars. A Mexican supermarket company has offered to purchase 12,000 jars of the product at a special price of $30 per jar. Cherry will incur additional shipping and selling costs of $1.50 per jar to complete this order.

Required: (a) What will be the effect on Cherry's operating income if it accepts this order? (b) Determine the incremental profit from accepting the order.

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