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The wording in the book is complex. So here is the simplified version:

Marias food forecast (status quo) is based on 3000 units sold at $6 per unit. The variable cost per unit produced of those 3000 units is $3. And the Fixed costs are $5,100 total. We also have admin costs of $1,500.

Maria gets a special order for 300 more units but these will be sold for only $3.50 per unit. The variable cost per unit is the same as the status quo so are the total fixed costs.

a) Prepare a differential analysis showing the status quo and the alternative that includes the special order.

b) Based on the differential analysis, decide if you would accept the special order.

Solution below:

Special Orders: Marias Food Service.

a)

	Status Quo 3,000 Units				Alternative 3,300 Units					Difference
Sales revenue........		$ 18,000				$19,050			$1,050		(higher)
Variable costs:
Meals...................		9,000				9,900			900		(higher)
Administrative....		1,500				1,500			0
Contribution margin		$ 7,500				$7,650			$ 150		(higher)
Fixed costs..............		5,100				5,100			0
Operating profit......		$ 2,400				$ 2,550			$ 150		(higher)

Accepting this order would increase operating profits by $150.

b) The difference is relatively small, so Maria might want to consider how confident she is in the estimates. In addition, she should consider whether accepting this order would lead to regular customers asking for special prices.

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