Peach Company produces and sells 25,000 jars of peach preserves each year. The following information...
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Accounting
Peach Company produces and sells 25,000 jars of peach preserves each year. The following information reflects a breakdown of its costs:
Cost Item
Costs per Jar
Total Costs
Variable production costs
$18
$450,000
Fixed production costs
$10
$250,000
Variable selling costs
$7
$175,000
Fixed selling and administrative costs
$5
$125,000
Total costs
$40
$1,000,000
Peach marks up its prices 30% over full costs. It has surplus capacity to produce 10,000 more jars. An Australian supermarket company has offered to purchase 8,000 jars of the product at a special price of $42 per jar. Peach will incur additional shipping and selling costs of $2 per jar to complete this order.
Required: (a) What will be the effect on Peach's operating income if it accepts this order? (b) Determine the incremental profit from accepting the order.
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