The following is a profitability statement of Charles Plc for the first quarter of 2019.

A (Shs)

B (Shs)

Total (Shs)

Sales Revenue

144,000

88,000

232,000

Manufacturing cost:

Fixed cost

25,000

19,000

44,000

Variable cost

60,000

52,000

112,000

85,000

71,000

156,000

Administrative costs (fixed in nature) allocated in proportion to manufacturing costs

21,750

13,200

34,950

Selling costs allocated in proportion to revenue

4030

4580

8610

Total costs

110,780

88,780

199,560

Product profit (Loss)

33,220

(780)

32,440

Production volume for this quarter of 2019 is A-1,200 units and B- 800 units. Charles Plc received an order for 200 units of product A from the export market at the rate of Shs.61. Management is of the opinion that product B is making a loss and therefore it is to be terminated. If product B is terminated, the released capacity can be given at a rent of Shs.35,000. Moreover, the fixed manufacturing costs would not be incurred if product B were not manufactured. Provide recommendation to management, supported by appropriate calculations, in response to the following questions

i.Should the special order be accepted? What minimum price would make acceptance of an order for additional 200 units of A worthwhile?(8 marks)

Should production of product B be terminated?