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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

Recompute the effect of the order and make a recommendation to management. Indicate the better alternative in and its net advantage

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
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)
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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