Coconut Company produces and sells 40,000 bottles of coconut milk each year. The following information...
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Accounting
Coconut Company produces and sells 40,000 bottles of coconut milk each year. The following information reflects a breakdown of its costs:
Cost Item
Costs per Bottle
Total Costs
Variable production costs
$10
$400,000
Fixed production costs
$7
$280,000
Variable selling costs
$4
$160,000
Fixed selling and administrative costs
$2
$80,000
Total costs
$23
$920,000
Coconut marks up its prices 35% over full costs. It has surplus capacity to produce 20,000 more bottles. A Dutch supermarket company has offered to purchase 12,000 bottles of the product at a special price of $26 per bottle. Coconut will incur additional shipping and selling costs of $1 per bottle to complete this order.
Required: (a) What will be the effect on Coconut's operating income if it accepts this order? (b) Analyze the effect on the company's overall contribution margin.
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