Mel suddenly finds an opportunity to sell boxed dinners. The new opportunity would require the use of the 30 percent unused capacity. The contribution margin from the dinners would amount to $3,600 annually.

	Amount			Per Unit
Sales revenue	$	18,000		$	6.00
Costs of meals produced		13,500			4.50
Gross profit	$	4,500		$	1.50
Administrative costs		2,100			0.70
Operating profit	$	2,400		$	0.80
Fixed costs included in this income statement are $4,500 for meal production and $600 for administrative costs. Maria has received a special request from an organization sponsoring a picnic to raise funds for the Special Olympics. This organization is willing to pay $3.50 per meal for 300 meals on April 10. Maria has sufficient idle capacity to fill this special order. These meals will incur all of the variable costs of meals produced, but variable administrative costs and total fixed costs will not be affected.

Required:

a. If Mel decides to sell dinners, what are the total costs for both making and buying the cookies?

b. Should Mel continue to buy the cookies?

	Yes
	No

Answer rating: 100% (QA)

Answer is highlighted in yellow Solution a Variable cost ... View the full answer