Cinotti Bread Depot bakes and sells each bagel for $1.25.The cost of producing 600,000 bagels in the prior year was: $$\begin{array} { c r }
\text { Revenues } & \$ 750,000 \
\text { Direct materials } & 330,000 \
\text { Direct labor } & 66,000 \
\text { Manufacturing overhead - fixed } & 132,000 \
\text { Manufacturing overhead - variable }& 84,000 &
\end{array}$$ 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: $$\begin{array} { c r } 
\text { Revenues } & \$ 750,000 \
\text { Direct materials } & 330,000 \
\text { Direct labor } & 66,000 \
\text { Manufacturing overhead - fixed } & 132,000 \
\text { Manufacturing overhead - variable }& 84,000 &
\end{array}$$ 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 special order will contribute $16,500 in revenues ($1.10 x 15,000 bagels) and incur $700 in additional fixed costs. The variable costs will be the same as for the regular bagels, so the contribution margin will be $0.10 per bagel. The special order will contribute $1,500 ($0.10 x 15,000 bagels) to profit. Therefore, the company should accept the special order.

Cinotti Bread Depot Bakes and Sells Each Bagel for $1