The HASF Company has an annual plant capacity of 50,000 units. Predicted data on sales and costs are given below.

Sales (50 per unit) 1,000,000

Manufacturing cost

Variable (material labor and overhead) 40 per unit

Fixed overhead 30,000

Selling and administrative expenses

Variable (sales commission RS 0.5 per unit) 2 per unit

Fixed 7,000

A special order has been received from outside for 5,000 units at a selling price of 45 per unit this order will no effect on regular sales. The usual sales commission on this order will be reduced by one half.

Required:

a.Should the company accept / reject the order?

b.Keeping in view the above answer narrate rationale to support your answer

Second Part.

The estimated costs of producing 6,000 units of a component are:

Per Unit

Direct Material

$10

Direct Labor

8

Applied Variable Factory Overhead

9

Applied Fixed Factory Overhead

12

$1.5 per direct labor dollar

The same component can be purchased from market at a price of $29 per unit. If the component is purchased from market, 25% of the fixed factory overhead will be saved.

Required:

a.Should the component be purchased from the market?

b.Being a production manager, provide your logical opinion on choosing between purchasing the component from market or producing in-house