Question
AKH Corporation produces antique-looking lamp shades. Management has just received a request for a special order and must decide whether to accept it. The special
AKH Corporation produces antique-looking lamp shades. Management has just received a request for a special order and must decide whether to accept it. The special order calls for 8,000 lamp shades to be shipped in a total of 200 bulk pack cartons. Shipping cost of P600 per carton will replace normal packaging and shipping costs. The purchasing company is offering to pay P240 per lamp shade plus packing and shipping expenses.
The following information has been provided by the accounting department. Annual expected production is 250,000 lamp shades, and the current year's production (before special order) is 260,000 lamp shades. Maximum production capacity is 280,000 lamp shades. Unit cost data include P62 for direct materials; P80 for direct labor; variable factory overhead of P58 and fixed factory overhead of P35 (P8,750,000/250,000 units). Normal packaging and shipping costs per unit come to P25, and advertising is P$3.60 per unit (P900,000/250,000 units). Other fixed administrative costs are P8.80 per unit ($220,000/250,000 units). Thus, total normal cost per unit is P272.40. Per unit selling price is 380. Total estimated bulk packaging costs (P600 per carton x 200 cartons) or P120,000.
Question: Determine whether the special order should be accepted. Prepare the differential analysis report in proper format.
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