14 (SPECIAL ORDER) The waterbed company manufactures several types of waterbeds expecting a jump in demand for its product. The company built a large plant with 1,250 units that currently is being utilized at 80% of capacity. A salesman brings in an offer from a large motel chain to purchase 200 heated king-size waterbeds for a price of Rs.550 each. Normal selling price for the bed is Rs. 1,200 each. The schedule of the present costs of the king-size waterbeds for the current year's production was as follows: Acceptance of the order would cause no increase in any fixed cost. Direct Materials Direct Labour Manufacturing Overhead (40% variable) Marketing (1/3 variable) Administrative (10% variable) Total Required: (a) Should the company accept the offer? Costs for 1000 Units Unit Cost Rs. 3,00,000 Rs. 300 1,00,000 100 2,00,000 200 3,00,000 300 1,00,000 100 Rs. 10,00,000 Rs.1,000 (b) Would your answer to be change if sales commission of Rs. 50 a bed could be eliminated on this special order? (c) Assume that 75 percent of the variable marketing costs can be eliminated. What would be the effect on the net income from accepting this order? [Ans: (a) Reject offer, decrease profit by Rs. 8,000, (b) Accept offer, increase profit by Rs. 2,000, (c) Accept offer, increase profit by Rs. 7,000]