Joshua Theodore owns Tang Flavors, a small business selling fruit-flavored milk shakes. Each drink sells for $4.50. Joshua derived his price as follows:

Drink mixture and crushed ice	$0.85
Labor per drink ($15 per hour 20 drinks per hour)	$0.75
Variable overhead per drink (cups, etc)	$0.50
Fixed overhead per drink	$0.55
Total cost per drink	$2.65

Joshua is considering a special order for a sale of 200 drinks for a social gathering. The hostess is willing to pay $2.50 per drink. The party will be in the evening, which is not during Joshua's regular business hours. Joshua will provide the drink mixture, ice and labor. His only additional expense will be one employee for two hours ($15 per hour), travel to and from the party location (estimated to be $25). Since the party is not at Joshua's business, his fixed overhead will not change. The party hostess will furnish all cups, napkins and other variable cost items.

Required:

1. What is the incremental cost associated with accepting the special order?

2. List the costs that are not relevant to the decision.

Answer rating: 100% (QA)

1 To determine the incremental cost associated with accepting the special order we need to calculate ... View the full answer