Propose whether operating income increase or decrease if the order is accepted with calculation details.
RG Motors has been approached by a new customer with an offer to purchase 5,000 units of its hand-free, Wi-Fi-enabled automotive model – the SMART, at a price of RM18,000 per automobile. RG’s other sales would not be affected by this new customer offer. RG normally produces 100,000 units of its SMART model per year but only plans to produce and sell 90,000 units in the coming year. The normal sales price is RM35,000 per SMART. Unit cost information for the normal level of activity is as follows:
Total Cost
Direct materials 10,000
Direct labor 2,000
Variable
Fixed overhead 8,000
Total 24,000
Fixed overhead will not be affected by whether or not the special order is accepted.
requird
(i) List the relevant costs and benefits of the two alternatives of the special order.
(ii) Propose whether operating income increase or decrease if the order is accepted with calculation details.
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