Jolly Ollie Orange Company sells citrus fruit from its website. Protecting the fruit during shipping is critical to the

Question

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 1,125,000 containers of fruit annually. Total costs to fabricate that many containers are as follows: Volume: 1,125,000 containers Direct materials $725,000 Direct labor $840,000 Variable overhead $824,000 Fixed overhead $772,000 Total $3,161,000 A major paper products company has offered to supply all of the containers that Jolly Ollie needs at a price of $2.00 per container. What will be the effect on pretax income If Jolly Ollie accepts this offer? Show your work.

Help In Homework · Accepted Answer

Differential Analysis: Particulars Make Buy Differential Direct Materials 725000 725000 Direct Labour 840000 840000 Variable overhead 824000 824000 Purchase cost (1,125,000*$2) 2250000 -2250000 Fixed overhead 772000 772000 0 Total Cost 3161000 3022000 139000 Pretax income will increase by $139,000 if the offer is accepted Note - Fixed overhead will remain same whether the offer is accepted or not.

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Jolly Ollie Orange Company sells citrus fruit from its website

Expert Solution

Archived Solution

Differential Analysis:
Particulars	Make	Buy	Differential
Direct Materials	725000		725000
Direct Labour	840000		840000
Variable overhead	824000		824000
Purchase cost (1,125,000*$2)		2250000	-2250000
Fixed overhead	772000	772000	0
Total Cost	3161000	3022000	139000

Pretax income will increase by $139,000 if the offer is accepted

Note - Fixed overhead will remain same whether the offer is accepted or not.