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Should the special order be accepted

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Question - ABC Company makes toy airplanes. One plane is an excellent replica of a 737; it sells for P5. Vacation Airlines wants to purchase 12,000 planes at P1.75 each to give to children flying unaccompanied. Costs per plane are as follows:

Direct materials P1.00

Direct labor 0.50

Variable overhead 0.10

Fixed overhead 0.90

No variable marketing costs would be incurred. The company is operating significantly below the maximum productive capacity. No fixed costs are avoidable. However, Vacation Airlines wants its own logo and colors on the planes. The cost of the decals is P0.01 per plane and a special machine costing P1,500 would be required to affix the decals. After the order is complete, the machine would be scrapped. Should the special order be accepted? Why?

Reference no: EM132992090

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