The R Company has annual production of 60,000 units a year. Budgeted operating results for 2020 are as follows: Sales (50,000 units @ P10) P500,000 Variable costs & expenses: Manufacturing (50,000 units @P3.20) P160,000 Selling (50,000 @P0.80) 40,000 200,000 Contribution margin P300,000 Fixed costs & expenses: Manufacturing P100,000 Selling Net income 80,000 180,000 P120,000 A wholesaler from another part of the country wants to buy 5,000 units at a price of P8 per unit. All fixed cost would remain within the relevant range. Variable manufacturing costs would be the same per unit but the variable selling expenses would increase by P2 per unit on the special order only. REQUIRED: 1. Determine whether the company should accept the special order. Use two solutions like Exercise 8-10. 2. Assuming the company wants to maximize profits, if the customer wants the special order to be 20,000 units, should the company reject the special order? Use two solutions also like no. 1. Exercise 8-10 Special order pricing; operating at maximum capacity of 200,000 units Direct materials P4.00 Direct labor 5.00 Variable factory overhead 3.60 Fixed factory overhead 5.40 Total P18.00 Req, 1. Comparative income statement Accept special order (Regular SP not affected) Accept special order (Regular SP affected) Reject special order Regular sales 180,000 units (P21) 180,000 units (P15) 200,000 units(P21) Special order 20,000 units (P15) 20,000 units (P15) None Sales Regular Special P3,780,000 300,000 P2,700,000 P4,200,000 300,000 XXX Total P4,080,000 P3,000,000 P4,200,000 Less: Cost of Goods Sold (P18) 3,600,000 3,600,000 3,600,000 Gross Profit P480,000 P(600,000) P600.000 Net advantage of rejecting special order when regular SP is not affected P120.000 P1,200,000 Net advantage of rejecting special order when regular SP is affected Req. 2. CM solutions Consequences of accepting special order when regular selling price is not affected: 1. New CM (P15.00 P12.60 P2.40/unit x 20,000 units) 2. Lost CM (21.00- P12.60 P8.40/unit x 20,000 units) Net disadvantage of accepting special order, so reject the special order Consequences of accepting special order when regular selling price is adversely affected: 1. New CM (P15.00- P12.60 2. Lost CM (P21.00- P12.60 3. Lost SP (P21.00- P15.00 P2.40/unit x 20,000 units P8.40/unit x 20,000 units P6.00/unit x 180,000 units Net disadvantage of accepting special order, so reject the special order P48,000 (168,000) P(120.000) P48,000 (168,000) (1,080,000) P(1.200.000)