Question
Jisso company produces skateboards that sell for P50 per unit. The company currently has the capacity to produce 90,000 skateboards per year, but is selling
Jisso company produces skateboards that sell for P50 per unit. The company currently has the capacity to produce 90,000 skateboards per year, but is selling 80,000 skateboards per year. Annual costs for 80,000 skateboards follow.
Direct materials P800,000
Direct labor 640,000
Overhead 960,000
Selling expenses 560,000
Administrative expenses 480,000
Total costs and expenses P3,440,00
A new retail store has offered to buy 10,000 of its skateboards for P45 per unit. The is in a different market from the Calla's regular customers and it would not affect regular sales. A of its costs in anticipation of this additional business reveal the following:
Direct materials and direct labor are 100% variable
Thirty percent of overhead is fixed at any production level from 80,000 units to 90,000 units; the remaining 70% of annual overhead cost are variable with respect to volume.
Selling expenses are 60% variable with respect to number of units sold, and the other 40% of selling expenses are fixed.
There will be an additional P2 per unit selling expense for this order.
Administrative expenses would increase by P1,000 fixed amount
Required:
1. Should the company accept this special order? What nonfinancial factors should the company consider?
2. Assume that the new customer wants to buy 15,000 units instead of 10,000 unitsit will only buy 15,000 units or none and will not take a partial order. How does this change your answer for part 2?
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