Required: (a) Should the company accept the offer? (b) Would your answer to be change if sales commission of Rs. 50 a bed could be eliminated on this special order? (c) Assume that 75 percent of the variable marketing costs can be eliminated. What would be the effect on the net income from accepting this order?
Required: (a) Should the company accept the offer? (b) Would your answer to be change if sales commission of Rs. 50 a bed could be eliminated on this special order? (c) Assume that 75 percent of the variable marketing costs can be eliminated. What would be the effect on the net income from accepting this order?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
![PROBLEM 14 (SPECIAL ORDER)
The waterbed company manufactures several types of waterbeds expecting a jump in demand for its product. The
company built a large plant with 1,250 units that currently is being utilized at 80% of capacity. A salesman brings in an offer
from a large motel chain to purchase 200 heated king-size waterbeds for a price of Rs.550 each. Normal selling price for the
bed is Rs.1,200 each. The schedule of the present costs of the king-size waterbeds for the current year's production was as
follows: Acceptance of the order would cause no increase in any fixed cost.
Costs for 1000 Units
Unit Cost
Direct Materials
Rs. 3,00,000
Rs. 300
Direct Labour
1,00,000
100
Manufacturing Overhead (40% variable)
2,00,000
200
Marketing (1/3 variable)
Administrative (10% variable)
3,00,000
300
1,00,000
100
Total
Rs.10,00,000
Rs.1,000
Required: (a) Should the company accept the offer?
(b) Would your answer to be change if sales commission of Rs. 50 a bed could be eliminated on this special
order?
(c) Assume that 75 percent of the variable marketing costs can be eliminated. What would be the effect on the
net income from accepting this order?
[Ans: (a) Reject offer, decrease profit by Rs. 8,000, (b) Acept offer, increase profit by Rs. 2,000,
(C) Accept offer, increase profit by Rs. 7,000]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F03eecdbf-da19-4f5c-a265-cf269087e6dd%2F039dc284-d073-43bd-80f4-e6f87aaddfde%2Fbutw4p_processed.jpeg&w=3840&q=75)
Transcribed Image Text:PROBLEM 14 (SPECIAL ORDER)
The waterbed company manufactures several types of waterbeds expecting a jump in demand for its product. The
company built a large plant with 1,250 units that currently is being utilized at 80% of capacity. A salesman brings in an offer
from a large motel chain to purchase 200 heated king-size waterbeds for a price of Rs.550 each. Normal selling price for the
bed is Rs.1,200 each. The schedule of the present costs of the king-size waterbeds for the current year's production was as
follows: Acceptance of the order would cause no increase in any fixed cost.
Costs for 1000 Units
Unit Cost
Direct Materials
Rs. 3,00,000
Rs. 300
Direct Labour
1,00,000
100
Manufacturing Overhead (40% variable)
2,00,000
200
Marketing (1/3 variable)
Administrative (10% variable)
3,00,000
300
1,00,000
100
Total
Rs.10,00,000
Rs.1,000
Required: (a) Should the company accept the offer?
(b) Would your answer to be change if sales commission of Rs. 50 a bed could be eliminated on this special
order?
(c) Assume that 75 percent of the variable marketing costs can be eliminated. What would be the effect on the
net income from accepting this order?
[Ans: (a) Reject offer, decrease profit by Rs. 8,000, (b) Acept offer, increase profit by Rs. 2,000,
(C) Accept offer, increase profit by Rs. 7,000]
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