Problem 2. Accept or reject a special order.
The manufacturing capacity of Baguio Corporation's facilities is 50,000 units of
product a year. A summary of operating results for the year end December 31, 2016 is
as follows:
					Total		Per Unit
	Sales (38,000 units)			P	3,800,000	P	100.00
	Less: Variable costs and expenses				2,090,000		55.00
	Contribution margin				1,710,000	P	45.00
	Less: Fixed costs and expenses				900,000
	Operating income			P	810,000
A distributor company has offered to buy 12,000 units at P90 per unit during 2017. Assume
that all of the corporation's costs would be at the same levels and rates in 2017 as to 2016.
Required: Should Baguio Corporation accept or reject the special sales order?
(Consider the following cases independently.)
1. The corporation has no alternative use of the idle capacity.
2. The corporation can rent out the idle capacity for P200,000.
3. The corporation can use the idle capacity to produce a new product that could
contribute a P600,000 contribution margin.
4. If the special order is accepted, 2,000 units of regular sales is expected to be lost.
5. Assuming a distributor has ordered 16,000 units and the corporation has to sacrifice
4000 of its regular customers to accommodate the special order.

Problem 2. Accept or reject a special order. The manufacturing capacity of Baguio Corporation's facilities is 50,000 units of product a year. A summary of operating results for the year end December 31, 2016 is as follows: Problem 2. Accept or reject a special order. The manufacturing capacity of Baguio Corporation's facilities is 50,000 units of product a year. A summary of operating results for the year end December 31, 2016 is as follows