Smooth Company manufactures decorative mugs and has been approached by a new customer with an...
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Smooth Company manufactures decorative mugs and has been approached by a new customer with an offer to purchase 15,000 units at a price of P70/unit. The new customer is geographically separated from Smooth Company's other customers and existing sales will not be affected. Smooth Company normally produce and sell only 65,000 units in the year. The normal sales price is 120 per unit. Production cost information is as follows: Direct materials Direct labor Variable overhead Fixed overhead P30.00 22.50 11.50 18.00 If Smooth Company accepted the order, they would have to purchase a special logo labelling machine that will cost 120,000. The machine will be used to label the 15,000 units and will be scrapped afterwards. In addition, each logo requires additional direct materials of P2.00. Which alternative is best for Smooth Company? By how much profit will increase or decrease if the order is accepted
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