Question

Rumba Dance Hall has offered to buy from Muy Bueno Bakery 100 of its chocolate cakes for $26 each. No variable selling costs would need to be paid, but special packaging of $140 will have to be added. Normally, Muy Bueno sells its cakes at $36 each. Its costs per cake are materials, $11; direct labor, $8; variable factory overhead, $2; fixed factory overhead, $3; and variable selling costs, $3. How much differential profit or loss will Muy Bueno make if it accepts this offer

Answer 1

differential profit = $360

Step-by-step explanation:

total variable production costs:

materials $11 x 100 = $1,100

direct labor $8 x 100 = $800

variable overhead $2 x 100 = $200

total = $2,100

+

special packaging $140

= total costs $2,240

differential profit = $2,600 - $2,240 = $360