Reference no: EM132960066

Question - On March 16, the JH Boat Division of ABC Industries received a special order request for 320, 10-foot aluminum row-type fishing boats. Operating on a fiscal year ending May 31, the divisio had orders that would allow them to produce at budget levels for the period. However, extra capacity existed to produce the 320 additional boats.

Terms of the special order called for a selling price of P22,500 per boat, with the customer paying all the shipping costs. No sales personnel were involved in soliciting the order.

The ten-foot fishing boat has the following cost estimates associated with it:

a) direct materials, aluminum, two 4' x 8' sheets at P4,500 per sheet

b) direct labor, 8 hours at P1,200 per hour

c) variable factory overhead, P350 per direct labor hour

d) fixed factory overhead, P550 per direct labor hour;

e) variable selling expenses, P3,650 per boat; and

f) variable shipping expenses, P2,725 per boat

Required -

1. Prepare an analysis for management of JH Boat Division to use in deciding whether to accept or reject the special order. What decision should be made?

2. What would be the lowest possible price the JH Division could charge per boat for this special order to make a P300,000 profit on it?