Score out of 10 Question 8 Jolly Ollie Orange Company Volume

Score: out of 10 Question #8 Jolly Ollie Orange Company Volume Direct materials Direct labor Variable overhead Fixed overhead Total 1,600,000 containers $ 516,000 $ 960,000 $ 1,068,000 $ 706,000 3,250,000 Offer price/container $ 1.75 Jolly Ollie Orange Company sells citrus fruit from its website. Protecting the fruit during shipping is critical to the company\'s success. Accordingly, Jolly Ollie fabricates its own shipping containers. Jolly Ollie ships 1,600,000 containers of fruit annually. Total costs to fabricate that many containers are provided at left. A major paper products company has offered to supply all of the containers that Jolly Ollie needs at a price of $1.75 per container What will be the effect on pretax income If Jolly Ollie accepts this offer? Show your work.

Solution

Dear Student Thank you for using Chegg Please find below the answer Statementshowing Computations Paticulars Make Buy Differential Direct Materials                    516,000.00                    516,000.00 Direct Labour                    960,000.00                    960,000.00 Variable overhead                1,068,000.00                1,068,000.00 Purchase cost = 1600,000*1.75                2,800,000.00              (2,800,000.00) Fixed overhead                    706,000.00                    706,000.00                                      -   Total Cost                3,250,000.00                3,506,000.00                  (256,000.00) Pretax income will decrease by $256,000 if offer is accepted Note - Fixed overhead will remain same whether offer is accepted or not