Gwinnett Barbecue Sauce Corporation manufactures a specialty barbecue sauce.Gwinnett has the capacity to manufacture and sell 10, 000 cases of sauce each year but is currently only manufacturing and selling 9, 000.The following costs relate to annual operations at 9, 000 cases: Gwinnett normally sells its sauce for $30 per case.A local school district is interested in purchasing Gwinnett's excess capacity of 1, 000 cases of sauce but only if they can get the sauce for $15 per case.This special order would not affect regular sales or total fixed costs or variable costs per unit.If this special order is accepted, Gwinnett's profits for the year will:

Question

Gwinnett Barbecue Sauce Corporation manufactures a specialty barbecue sauce.Gwinnett has the capacity to manufacture and sell 10, 000 cases of sauce each year but is currently only manufacturing and selling 9, 000.The following costs relate to annual operations at 9, 000 cases:  Gwinnett normally sells its sauce for $30 per case.A local school district is interested in purchasing Gwinnett's excess capacity of 1, 000 cases of sauce but only if they can get the sauce for $15 per case.This special order would not affect regular sales or total fixed costs or variable costs per unit.If this special order is accepted, Gwinnett's profits for the year will:

Quizplus · Accepted Answer

If Gwinnett accepts the special order from the school district at $15 per case, their revenue will increase by (1,000 x $15) = $15,000. However, the cost of producing the 1,000 extra cases is not given, so it is assumed that the variable cost per unit and the total fixed costs will remain the same.

Therefore, Gwinnett's profit will decrease by the contribution margin per case on the special order of $15 - variable cost per unit. Since the special order is at a price lower than the normal selling price, the contribution margin per case will be lower than usual. If the contribution margin per case is assumed to be $10 (based on the information given), then the decrease in profit for the year will be:

1,000 x ($10) = $10,000

Therefore, Gwinnett's profit for the year will decrease by $10,000, resulting in a new net income of $4,000 ($14,000 - $10,000). This means that the answer is B, decrease by $1,000.

Gwinnett Barbecue Sauce Corporation Manufactures a Specialty Barbecue Sauce