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Fukuoka Company manufactures jewelry cases. The firm is currently operating at 80% of its capacity of 7,500 direct labor hours per month. The sales

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Fukuoka Company manufactures jewelry cases. The firm is currently operating at 80% of its capacity of 7,500 direct labor hours per month. The sales manager has been looking for special orders to increase the use of capacity. Nagoya Company has offered to buy 10,000 cases at P7.5- per cases provided the delivery is within two months. Per case cost data for the order are as follows: Materials Direct labor (1/2 hour at P6) Manufacturing overhead Total unit cost P2.50 3.00 2.00 P7.50 Variable manufacturing overhead is P1.50 per direct labor hour and the company allocates fixed manufacturing overhead to units of product based on their direct labor time. Without the order, Fukuoka has enough business to operate at 6,000 direct labor hours (80% of 7,500) in each of the next two months. The normal selling price of the jewelry case is P10.50. Rings would put its own label on the case. The production manager is concerned about the labor time that making 10,000 cases would require. She cannot schedule more than 7,500 hours per month because Fukuoka has a policy about overtime. Thus, the company would have reduce some regular-price sales of the jewelry case if it accepts the order. Nagoya Company would not take fewer than 10,000 cases. Required: a. Determine whether Nice box should accept the order. If accepted, by how much would income increase or decrease? b. Determine the price per case for the order that would make Fukuoka indifferent between accepting and rejecting the order (the price that would give Fukuoka the same profit under both alternative.

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