Assume that MTA Sandwiches sells sandwiches for $7.20 each. The cost of each sandwich follows:
Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2.70
Labor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.90
Variable overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.45
Fixed overhead ($10,800 per month, 6,000 units per month) . . . 1.80
Total costs per sandwich . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5.85
One of MTA's regular customers asked the company to fill a special order of sandwiches at a selling price of $5.40 each for a fund-raising event sponsored by a social club at the local college. MTA has capacity to fill it without affecting total fixed costs for the month. MTA's general manager was concerned about selling the sandwiches below the cost of $5.85 and has asked for your advice.
Required
a. Prepare a schedule to show the impact on MTA's profits of providing 400 sandwiches in addition to the regular production and sales of 6,000 sandwiches per month.
b. Based solely on the data given, what is the lowest price per sandwich at which the special order can be filled without reducing MTA's profits?
c. What other factors might the general manager want to consider in setting a price for the special order?