Tomato Company produces and sells 30,000 cans of tomato sauce each year. The following information...
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Accounting
Tomato Company produces and sells 30,000 cans of tomato sauce each year. The following information reflects a breakdown of its costs:
Cost Item
Costs per Can
Total Costs
Variable production costs
$14
$420,000
Fixed production costs
$9
$270,000
Variable selling costs
$5
$150,000
Fixed selling and administrative costs
$4
$120,000
Total costs
$32
$960,000
Tomato marks up its prices 50% over full costs. It has surplus capacity to produce 10,000 more cans. An Irish supermarket company has offered to purchase 8,000 cans of the product at a special price of $36 per can. Tomato will incur additional shipping and selling costs of $2 per can to complete this order.
Required: (a) What will be the effect on Tomato's operating income if it accepts this order? (b) Determine the incremental profit from accepting the order.
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