Sweet Wave Bakery normally produces sourdough bread on a regular basis. It sells approximately 35,000 of this type of bread each year. The variable costs for each loaf of bread are $2.30. Sunshine bakery in Miami has not been able to produce enough sourdough bread loaves to meet customer demands. They would like to purchase 15,000 loaves for $2.60 per loaf. Sweet Wave’s sourdough bread line is near full capacity. In order to accept the order from Sunshine, Sweet Wave would have to temporarily add a 3rd shift to their sourdough line. This would increase the variable manufacturing costs by $.30 per loaf but variable selling costs would decrease by .20 per loaf.
A restaurant has requested to purchase a special order of sourdough bread. They are requesting 2,000 loaves. Sweet Wave has the capacity for this order without adding the additional shift. The restaurant is willing to pay $3.10 per loaf of bread.
Instructions
Given the information above:
(a) What are the consequences of Sweet Wave agreeing to provide the 15,000 units to Sunshine Bakery? Would this be a wise "special order" to accept?
