Boniatillo Corporation, which produces one product, had the following income statement for a

recent

month:

Boniatillo Corporation

Income Statement

For the Month of March $2014$

Sales $$30,000$

Cost of goods sold $27,000$

Gross profit $ $3,000$

Selling and administrative $2,500$

Net income $ $500$

There were no beginning or ending inventories of work$-$in$-$process or finished goods. Boniatillo's

manufacturing costs were as follows:

Direct materials $(1,200$ units x $$5)$ $ $6,000$

Direct labor $(1,200$ units x $$8)9,600$

Variable overhead $(1,200$ units x $$4\mathrm{.}50)5,400$

Fixed overhead $6,000$

Total $$27,000$

Average cost per unit $ $22\mathrm{.}50$

Selling and administrative expenses include a $5\%$ sales commission. The remainder of the selling

and admin expenses are fixed.

Boniatillo has just received a special order from a firm in China to purchase $900$ units at $$20$

each. The order will not affect the selling price to regular customers but requires additional fixed

overhead of $$1,250.$ Sales commission will not be paid on the special order.

Required:

a$.$ Prepare a relevant cost analysis of the relevant costs and revenues associated with the

decision to accept or reject the special order, assuming Boniatillo has excess capacity.

Indicate if Boniatillo should accept or reject the special order.

b$.$ Determine the net advantage or disadvantage $($profit increase or decrease$)$ of accepting

the order, assuming Boniatillo does not have excess capacity. Indicate if Boniatillo

should accept or reject the special order.