Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

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 ?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting For Sustainability

Authors: Gunnar Rimmel

1st Edition

0367478927, 9780367478926

More Books

Students also viewed these Accounting questions

Question

What is a variable interest entity (VIE)?

Answered: 1 week ago

Question

Question 1 (a2) What is the reaction force Dx in [N]?

Answered: 1 week ago

Question

Distinguish between recruitment sources and recruitment methods.

Answered: 1 week ago

Question

How has social media emerged as an important force in recruiting?

Answered: 1 week ago

Question

5.5 Summarize external recruitment methods.

Answered: 1 week ago