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Homework answers / question archive / Decision Match – Accept or Reject a Special Order Dela Cruz Company has been approached by a new customer with an offer to purchase 10,000 units of its model JA2020 at a price of P250 each

Decision Match – Accept or Reject a Special Order Dela Cruz Company has been approached by a new customer with an offer to purchase 10,000 units of its model JA2020 at a price of P250 each

Accounting

Decision Match – Accept or Reject a Special Order

Dela Cruz Company has been approached by a new customer with an offer to purchase 10,000 units of its model JA2020 at a price of P250 each. The new customer is geographically separated from the company's other customers, and existing sales would not be affected. Dela Cruz normally produces 75,000 units of JA2020 per year but only plans to produce and sell 60,000 in the coming year. The normal sales price is P600 per unit. Unit cost information for the normal level of activity is as follows:

 

Direct materials

P 87.50

Direct labor

125.00

Variable overhead

75.00

Fixed overhead

162.50

Fixed overhead will not be affected by whether or not the special order is accepted. Required:

  1. What are the relevant costs and benefits of the two alternatives? (accept or reject) Relevant Benefits = Unit purchase X Price of each

 

  1. By how much will operating income increase or decrease if the order is accepted?

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