PROBLEM 14 (SPECIAL ORDER)The waterbed company manufactures several types of waterbeds expecting a jump in demand for its product. Thecompany built a large plant with 1,250 units that currently is being utilized at 80% of capacity. A salesman brings in an offerfrom a large motel chain to purchase 200 heated king-size waterbeds for a price of Rs.550 each. Normal selling price for thebed is Rs.1,200 each. The schedule of the present costs of the king-size waterbeds for the current year's production was asfollows: Acceptance of the order would cause no increase in any fixed cost.Costs for 1000 UnitsUnit CostDirect MaterialsRs. 3,00,000Rs. 300Direct Labour1,00,000100Manufacturing Overhead (40% variable)2,00,000200Marketing (1/3 variable)Administrative (10% variable)3,00,0003001,00,000100TotalRs.10,00,000Rs.1,000Required: (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 specialorder?(c) Assume that 75 percent of the variable marketing costs can be eliminated. What would be the effect on thenet 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]

The decision regarding whether to accept or reject the offer depends upon various factors like the…

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?

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter8: Tactical Decision-making And Relevant Analysis

Section: Chapter Questions

Problem 41E

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