2-45 (Profitability opportunity cost) Dawson Company produces and sells
80,000 boxes of specialty foods each year. Each box contains the same
assortment of food. The company has computed the following annual costs.
Cost Item Total Costs
Variable Production costs $400,000
Fixed Production costs 480,000
Variable selling costs 320,000
Fixed selling and admin costs 200,000
Total costs $1,400,000
Dawson normally charges $25 per box. A new distributor has offered to
purchase 8,000 boxes at a special price of $22 per box. Dawson will
incur additional packaging costs of $1 per box to complete this order.
* A) Suppose Dawson has a surplus capacity to produce 8,000 more boxes.
What will be the effect on Dawson's income if it accepts this order?
* B) Suppose that instead of having surplus capacity to produce 8,000
more boxes. Dawson has surplus capacity to produce only 3,000 more
boxes. What will be the effect on Dawson's income if it accepts the new
order for 8,000 boxes?
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