) Propose whether operating income increase or decrease if the order is accepted
Tania Company manufactures watches. A national sporting goods chain recently
submitted a special order for 4,000 sport watches. Tania was not operating at capacity
and could use the extra business. Unfortunately, the order’s offering price of RM17 per
watch was below the cost to produce the watches. The controller did not agree to take a
loss on the deal. However, the personnel manager argued in favor of accepting the
order even though a loss would be incurred: it would avoid the problems of layoff and
would help maintain the community image of the company. The following information
is the full cost to produce a sport watch:Table 6: Production Costs
Details Unit Cost
RM
Direct materials 6.50
Direct labor 5.00
Variable
Fixed overhead 2.50
Total 17.25
List the relevant costs of the two alternatives of the special order.
(ii) Propose whether operating income increase or decrease if the order is accepted
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