Spinach Company produces and sells 60,000 cans of spinach each year. The following information reflects...
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Accounting
Spinach Company produces and sells 60,000 cans of spinach each year. The following information reflects a breakdown of its costs:
Cost Item
Costs per Can
Total Costs
Variable production costs
$10
$600,000
Fixed production costs
$7
$420,000
Variable selling costs
$4
$240,000
Fixed selling and administrative costs
$2
$120,000
Total costs
$23
$1,380,000
Spinach marks up its prices 50% over full costs. It has surplus capacity to produce 25,000 more cans. A Finnish supermarket company has offered to purchase 15,000 cans of the product at a special price of $28 per can. Spinach will incur additional shipping and selling costs of $1 per can to complete this order.
Required: (a) What will be the effect on Spinach's operating income if it accepts this order? (b) Determine the incremental profit from accepting the order.
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