Healthy Hearth specializes in lunches for the health conscious.The company produces a small selection of lunch offerings each day.The menu selections may vary from day to day, but Healthy Hearthcharges the same price per menu selection because it adjusts theportion sizes according to the cost of producing the selection.Healthy Hearth currently sells 5,000 meals per month. Variablecosts are $3 per meal, and fixed costs total $5,000 per month. Agovernment agency has recently proposed that Healthy Hearth provide1,000 meals next month for senior citizens at $3.50 per meal.Volunteers will deliver the meals to the senior citizens at nocharge.
Required
1. Suppose Healthy Hearth has sufficient idle capacity toaccommodate the government order for next month. What will be theimpact on Healthy Hearth's operating income if it accepts this order?
2. Suppose that Healthy Hearth would have to give up regular salesof 500 meals, at a price of $4.50 each, to accommodate the government order for next month. What will be the impact on Healthy Hearth's operating income if it accepts the governmentorder?