Consider the following details of the income statement of KDF Company for the year just ended December
Question:
Consider the following details of the income statement of KDF Company for the year just ended December 31, 20 x x.
Sales (1,000,000 units) Br. 20,000,000
Manufacturing cost of goods sold 15,000,000
Gross margin Br. 5,000,000
Selling and administrative expenses 4,000,000
Operating income Br . 1,000,000
The company’s fixed manufacturing costs were Br.3 million and its fixed selling and administrative costs were Br.2.9 million.
Near the end of the year, Ethio Company offered KDF Br.13 per unit for 100,000 unit special order. The special order would not affect KDF’s regular business in any way. Furthermore, the special sales order would not affect total fixed costs and would not require any additional variable selling and administrative expenses.
Instruction: Assume that the company would utilize its idle manufacturing capacity to accept the special order. And use contribution margin approach. a) Should KDF accept or reject the special order?
b) By what percentage the operating income decreases or increases if the order had been accepted?
Managerial Accounting Creating Value in a Dynamic Business Environment
ISBN: 978-0078025662
10th edition
Authors: Ronald Hilton, David Platt