Kapol Companys normal capacity is 60,000 units. Since the past few months, it has utilized only one
Question:
Kapol Company’s normal capacity is 60,000 units. Since the past few months, it has utilized only one half of this capacity. For last month, the result of its operation is summarized in the following statement:
Sales from 30,000 units - P 1,500,000
Less: Variable costs - 600,000
Contribution margin - 900,000
Less: Fixed costs - 500,000
Profit P - 400,000
On the variable and fixed costs shown on the statement, 3/4 are manufacturing costs; the balance represents selling and administrative costs. This month, a customer submitted a proposal to buy 35,000 units of Kapol Company’s product at P25 per unit. The only selling cost to be incurred for this order is P4.00 per unit representing freight charges that will be shouldered by Kapol. If this special order proves to be acceptable, Kapol is willing to reduce sales to regular customers so as not to exceed its normal capacity.
Required:
Should the order be accepted?
Expert Answer:
Selling units 30000 units Sales value P 1500000 Variable cost P 600000 Selling price per unit Sales ... View the full answer
