Garlic Company produces and sells 30,000 jars of minced garlic each year. The following information...
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Accounting
Garlic Company produces and sells 30,000 jars of minced garlic each year. The following information reflects a breakdown of its costs:
Cost Item
Costs per Jar
Total Costs
Variable production costs
$14
$420,000
Fixed production costs
$8
$240,000
Variable selling costs
$5
$150,000
Fixed selling and administrative costs
$3
$90,000
Total costs
$30
$900,000
Garlic marks up its prices 40% over full costs. It has surplus capacity to produce 10,000 more jars. A New Zealand supermarket company has offered to purchase 8,000 jars of the product at a special price of $34 per jar. Garlic will incur additional shipping and selling costs of $2 per jar to complete this order.
Required: (a) What will be the effect on Garlic's operating income if it accepts this order? (b) Prepare a break-even analysis for the additional order.
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