Question

Question No. 1-1

The HASF Company has an annual plant capacity of 50,000 units. Predicted data on sales and costs are given below.

Sales (50 per unit)                                            1,000,000

Manufacturing cost

Variable (material labor and overhead)                        40 per unit

Fixed overhead                                                            30,000

Selling and administrative expenses

Variable (sales commission RS 0.5 per unit)    2 per unit

Fixed                                                               7,000

A special order has been received from outside for 5,000 units at a selling price of 45 per unit this order will no effect on regular sales. The usual sales commission on this order will be reduced by one half.

Required:

a) Should the company accept / reject the order?                                                       

b)Keeping in view the above answer narrate rationale to support your answer

Answer 1

Question-a:

The Company shall accept the Order, because the Order gives an Contribution of $ 3.25 per unit sold

Question- b:

When a Company received a special order, the company shall not consider the Fixed Manufacturing and Fixed Selling & Administrative Expense while deciding whether to accept the order or not.