Reference no: EM131987609
Problem - The following Budgeted Statement of Comprehensive Income is for a manufacturer which has received a special order to sell 90 000 units of a product at R33 per unit during December 2017. Planned sales for 2017 (excluding the special order) were 240 000 units whilst the plant capacity was 300 000 units. Fixed costs would increase by R180 000 if the special order is accepted since the plant capacity has to be increased.
BUDGETED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 2017
Sales (240 000 units) 11 520 000
Manufacturing costs: (9 360 000)
Direct materials 3 600 000
Direct labour 1 440 000
Fixed overheads 1 920 000
Variable overheads 2 400 000
Gross profit 2 160 000
Fixed selling, general and administrative costs (720 000)
Operating profit 1 440 000
Calculate the total Operating Profit/Loss for 2017 if the special order is accepted. Based on your calculations, should the special order be accepted? Why?
Calculate the total costs that are relevant to the special order only (i.e. 90 000 units).
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