Reference no: EM132804990

Question - Koho Ltd. produces handheld portable televisions. The normal selling price is $400 and its unit production cost is $264 as detailed below:

Direct Materials $143

Direct labor $86

Manufacturing overhead $35

80% of the manufacturing overhead is fixed, with the remaining 20% being variable.

The company's annual capacity is 10,000 units and they are currently operating at 95% of capacity. It historically sells all that it produces. The company has been approached by a customer, located outside Koho's normal market, who wants to make a one-time purchase of 2,000 custom televisions at $350 per television. There will be no change to the unit direct material cost; however, a special process will add an additional $6 per television to direct labor.

In order to make this special order, Koho will have to buy a specialized piece of equipment for $2,000. This equipment will have no use after the special order is completed.

REQUIRED -

Should Koho accept the order? Show the total effect on income if this order is accepted. (Show all Calculations.)

Identify two qualitative factors that should be considered before accepting a special order.