Grape Company produces and sells 45,000 bottles of grape juice each year. The following information...
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Accounting
Grape Company produces and sells 45,000 bottles of grape juice each year. The following information reflects a breakdown of its costs:
Cost Item
Costs per Bottle
Total Costs
Variable production costs
$14
$630,000
Fixed production costs
$10
$450,000
Variable selling costs
$5
$225,000
Fixed selling and administrative costs
$4
$180,000
Total costs
$33
$1,485,000
Grape marks up its prices 40% over full costs. It has surplus capacity to produce 20,000 more bottles. A Chinese supermarket company has offered to purchase 10,000 bottles of the product at a special price of $38 per bottle. Grape will incur additional shipping and selling costs of $2 per bottle to complete this order.
Required: (a) What will be the effect on Grape's operating income if it accepts this order? (b) Prepare a detailed analysis of the incremental costs and benefits.
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