Solving for minimum price. Assume that Dan & Barry's sells ice cream for $3 per quart. The cost of each quart follows:
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Materials
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$1.00
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Labor
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0.50
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Variable Overhead
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0.25
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Fixed Overhead ($20,000 per month, 20,000 quarts per month)
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1.00
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Total Cost per Quart
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$2.75
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One of Dan & Barry's regular customers asked the company to fill a special order of 400 quarts at a selling price of $2.50 per quart for a special picnic. Dan & Barry's can fill the order using existing capacity without affecting total fixed costs for the month.
Dan & Barry's general manager was concerned about selling the ice cream below the cost of $2.75 per quart and has asked for your advice.
a. Prepare a schedule to show the impact of providing the special order of 400 quarts of ice cream on Dan & Barry's profits in addition to the regular production and sales of 20,000 quarts per month.
b. Based solely on the data given, what is the lowest price per quart at which the ice cream in the special order could be sold without reducing Dan & Barry's profits?