Summertime Products makes outdoor shirts. Data relating to the coming years planned operations follows:

Sales (200,000 shirts) P 5,000,000

Cost of good sold 3,500,000

Gross profit P 1,500,000

Selling and administrative expenses 1,100,000

Income P 400,000

The factory has capacity to make 240,000 shirts per year. Fixed cost included in cost of goods sold was P 1,000,000. The only variable selling, general, and administrative expenses are a 10% sales commission and a P 2.00 per shirt licensing fee paid to the designer.

A chain store manager has approached the sales manager of Summertime Products offering to buy 30,000 shirts at P18 per shirt. These shirts would be sold in areas where Summertime shirts are not now sold. The sales manager believes that the accepting the offer would result in a loss because the average total cost of a shirt is P 23 ([3,500,000+P 1,100,000]/200,000). He feels that even though sales commissions would not be paid on the order, a loss would still result.

Required:

1. Determine whether the company should accept the offer.

b. Suppose that the order was for 60,000 shirts instead of 30,000. What would be the companys income if it accepted the order?

c. Assuming the same facts as in requirement a , what is the lowest price that the company could accept and still earn P 400,000?

d. How many units of sales at the regular price could the company loose before it becomes unprofitable to accept the order in requirement b ?