Recompute the effect of the order and make a recommendation to management. Indicate the better alternative in and its net advantage
Recompute the effect of the order and make a recommendation to management. Indicate the better alternative in and its net advantage
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Recompute the effect of the order and make a recommendation to management. Indicate the better alternative in and its net advantage
![Easy-peasy Co. has an offer for a special order of 100,000 units at a unit price of P6. The present
production of 425,000 units is 85% of capacity. Fixed factory overhead is P1,250,000 at 100%
capacity. The following are gathered from operations: Materials, P1.80; Direct labor, P1.40;
Variable overhead per unit, PO.50; Variable marketing expense, PO.50; Fixed general and
administrative expenses, P800,000. It is expected that the company will incur an additional lease
cost for additional equipment required for the special order, P10,000. The accountant estimated
that the order will result as follows:
Revenue
600,000.00
Differential cost of goods sold
Direct materials
180,000.00
Direct labor
140,000.00
Variable FOH
50,000.00
Fixed FOH
250,000.00
620,000.00
Loss
(20,000.00)
Less: Variable marketing expenses
50,000.00
Loss on this order
(70,000.00)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F3b51fa82-f704-469b-b94c-c951cf001bbf%2Fe0c0d3db-8937-42f3-8bdc-0254ab845ad1%2F0wmhm6u_processed.png&w=3840&q=75)
Transcribed Image Text:Easy-peasy Co. has an offer for a special order of 100,000 units at a unit price of P6. The present
production of 425,000 units is 85% of capacity. Fixed factory overhead is P1,250,000 at 100%
capacity. The following are gathered from operations: Materials, P1.80; Direct labor, P1.40;
Variable overhead per unit, PO.50; Variable marketing expense, PO.50; Fixed general and
administrative expenses, P800,000. It is expected that the company will incur an additional lease
cost for additional equipment required for the special order, P10,000. The accountant estimated
that the order will result as follows:
Revenue
600,000.00
Differential cost of goods sold
Direct materials
180,000.00
Direct labor
140,000.00
Variable FOH
50,000.00
Fixed FOH
250,000.00
620,000.00
Loss
(20,000.00)
Less: Variable marketing expenses
50,000.00
Loss on this order
(70,000.00)
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