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Onion Company produces and sells 50,000 bags of onion rings each year. The following information...

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Accounting

Onion Company produces and sells 50,000 bags of onion rings each year. The following information reflects a breakdown of its costs:

Cost Item

Costs per Bag

Total Costs

Variable production costs

$13

$650,000

Fixed production costs

$8

$400,000

Variable selling costs

$5

$250,000

Fixed selling and administrative costs

$3

$150,000

Total costs

$29

$1,450,000

Onion marks up its prices 35% over full costs. It has surplus capacity to produce 20,000 more bags. A Norwegian supermarket company has offered to purchase 12,000 bags of the product at a special price of $33 per bag. Onion will incur additional shipping and selling costs of $1.50 per bag to complete this order.

Required: (a) What will be the effect on Onion's operating income if it accepts this order? (b) Analyze the impact on the company's overall profitability.

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