Assume that Cold Rock sells ice cream for $4.80 per gallon. The cost of each gallon follows: Materials . . . . . . . . . . . . .$1.80 Labor. . . . . . . . . . . . . . 0.60 Variable overhead . . . . . . . . . . . . . .0.30 Fixed overhead ($24,000 per month, 20,000 gallons per month) . . . ............... 1.20 Total costs per gallon . . . . . . . . . . . . . . . . $3.90 One of Cold Rock’s regular customers asked the company to fi ll a special order of 400 gallons at a selling price of $3.60 per gallon for a fund-raising picnic for a local charity. Cold Rock has capacity to fi ll it without affecting total fi xed costs for the month. Cold Rock’s general manager was concerned about selling the ice cream below the cost of $3.90 per gallon and has asked for your advice. Required a. Prepare a schedule to show the impact on Cold Rock’s profi ts of providing 400 gallons of ice cream in addition to the regular production and sales of 20,000 gallons per month. b. Based solely on the data given, what is the lowest price per gallon at which the ice cream in the special order could be sold without reducing Cold Rock’s profi ts? c. What other factors might the general manager want to consider in setting a price for the special order?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter9: Standard Costing: A Functional-based Control Approach

Section: Chapter Questions

Problem 30P: Algers Company produces dry fertilizer. At the beginning of the year, Algers had the following...

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Assume that Cold Rock sells ice cream for $4.80 per gallon. The cost of each gallon follows: Materials . . . . . . . . . . . . .$1.80 Labor. . . . . . . . . . . . . . 0.60 Variable overhead . . . . . . . . . . . . . .0.30 Fixed overhead ($24,000 per month, 20,000 gallons per month) . . . ............... 1.20 Total costs per gallon . . . . . . . . . . . . . . . . $3.90 One of Cold Rock’s regular customers asked the company to fi ll a special order of 400 gallons at a selling price of $3.60 per gallon for a fund-raising picnic for a local charity. Cold Rock has capacity to fi ll it without affecting total fi xed costs for the month. Cold Rock’s general manager was concerned about selling the ice cream below the cost of $3.90 per gallon and has asked for your advice. Required a. Prepare a schedule to show the impact on Cold Rock’s profi ts of providing 400 gallons of ice cream in addition to the regular production and sales of 20,000 gallons per month. b. Based solely on the data given, what is the lowest price per gallon at which the ice cream in the special order could be sold without reducing Cold Rock’s profi ts? c. What other factors might the general manager want to consider in setting a price for the special order?

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