Cinotti Bread Depot bakes and sells each bagel for $1.25. The cost of producing 600,000 bagels in the prior year was: $$\begin{array} { l r }
\text { Revenues } & \$ 750,000 \
\text { Direct materials } & 330,000 \
\text { Direct labor } & 66,000 \
\text { Manufacturing overhead - fixed } & 132,000 \
\text { Manufacturing overhead - variable } & 84,000
\end{array}$$ At the start of the current year, Cinotti received a special order for 15,000 bagels to be sold for $1.10 per bagel. The company estimates it will incur an additional $700 in total fixed costs in order to lease a special machine needed to bake the bagels in the customer's logo shape. Also, this order will not affect any of its other operations. Should the company accept the special order?

Question

Cinotti Bread Depot bakes and sells each bagel for $1.25. The cost of producing 600,000 bagels in the prior year was: $$\begin{array} { l r } 
\text { Revenues } & \$ 750,000 \
\text { Direct materials } & 330,000 \
\text { Direct labor } & 66,000 \
\text { Manufacturing overhead - fixed } & 132,000 \
\text { Manufacturing overhead - variable } & 84,000
\end{array}$$ At the start of the current year, Cinotti received a special order for 15,000 bagels to be sold for $1.10 per bagel. The company estimates it will incur an additional $700 in total fixed costs in order to lease a special machine needed to bake the bagels in the customer's logo shape. Also, this order will not affect any of its other operations. Should the company accept the special order?

Quizplus · Accepted Answer

The incremental revenue from the special order is 15,000 bagels x $1.10 per bagel = $16,500. The incremental costs are $700 in fixed costs and no variable costs. Therefore, the incremental profit is $16,500 - $700 = $15,800. Since the incremental profit is positive, the company should accept the special order.

Cinotti Bread Depot Bakes and Sells Each Bagel for $1