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?

Answer rating: 100% (QA)

Sales price per unit Total Manufactoring cost of goods sold 20000000 1000000 Fixed Manufactoring 300... View the full answer