Required: 1. What is the profit normally earned on one production run of Refined Oil and Top Quality Oil? 2. Should Fiorello accept the special order?
Required: 1. What is the profit normally earned on one production run of Refined Oil and Top Quality Oil? 2. Should Fiorello accept 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
Chapter7: Allocating Costs Of Support Departments And Joint Products
Section: Chapter Questions
Problem 27E: Pacheco, Inc., produces two products, overs and unders, in a single process. The joint costs of this...
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Special Order, Traditional Analysis
Transcribed Image Text:Special Order, Traditional Analysis
Fiorello Company manufactures two types of cold-pressed olive oil, Refined Oil and Top Quality Oil, out of a joint process. The joint (common) costs incurred are $85,200 for a standard production run that generates 39,000 gallons of Refined Oil and
19,500 gallons of Top Quality Oil. Additional processing costs beyond the split-off point are $2.55 per gallon for Refined Oil and $1.70 per gallon for Top Quality Oil. Refined Oil sells for $4.30 per gallon, while Top Quality Oil sells for $8.25 per gallon.
MangiareBuono, a supermarket chain, has asked Fiorello to supply it with 39,000 gallons of Top Quality Oil at a price of $8.05 per gallon. MangiareBuono plans to have the oil bottled in 16-ounce bottles with its own MangiareBuono label.
If Fiorello accepts the order, it will save $0.20 per gallon in packaging of Top Quality Oil. There is sufficient excess capacity for the order. However, the market for Refined Oil is saturated, and any additional sales of Refined Oil would take place at a
price of $3.28 per gallon. Assume that no significant non-unit-level activity costs are incurred.
Required:
1. What is the profit normally earned on one production run of Refined Oil and Top Quality Oil?
X
2. Should Fiorello accept the special order?
Yes
✓
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