ABC normally produces sourdough bread on a regular basis. It sells approximately 35,000 of this type of bread each year. The variable costs for each loaf of bread are $2.30. XYZ in Miami has not been able to produce enough sourdough bread loaves to meet customer demands. They would like to purchase 15,000 loaves for $2.60 per loaf. ABC's sourdough bread line is near full capacity. In order to accept the order from XYZ, ABC would have to temporarily add a 3^rd shift to their sourdough line. This would increase the variable manufacturing costs by $.30 per loaf but variable selling costs would decrease by .20 per loaf.

A restaurant has requested to purchase a special order of the sourdough bread. They are requesting 2,000 loaves. ABC has the capacity for this order without adding the additional shift. The restaurant is willing to pay $3.10 per loaf of bread.

Instructions

Given the information above:

(a) What are the consequences of ABC agreeing to provide the 15,000 units to xyz? Would this be a wise "special order" to accept?

(b) Should ABC accept the special order from the restaurant?

(c) What would be the consequences of accepting both special orders?