Bonilla Ltd., which produces one product, had the following income statement for a recent month:
There were no beginning or ending inventories of work-in-process or finished goods. Bonilla's manufacturing costs were as follows:
Selling and administrative expenses are all fixed.
Bonilla has just received a special order from a firm in Canada to purchase 800 units at £20 each. The order will not affect the selling price to regular customers.
Required:

a.
Prepare a differential analysis of the relevant costs and revenues associated with the decision to accept or reject the special order, assuming Bonilla has excess capacity.
b.
Determine the net advantage or disadvantage (profit increase or decrease) of accepting the order, assuming Bonilla does not have excess capacity.

Question

Bonilla Ltd., which produces one product, had the following income statement for a recent month:
There were no beginning or ending inventories of work-in-process or finished goods. Bonilla's manufacturing costs were as follows:
  Selling and administrative expenses are all fixed.
Bonilla has just received a special order from a firm in Canada to purchase 800 units at £20 each. The order will not affect the selling price to regular customers.
Required:
  
a.
Prepare a differential analysis of the relevant costs and revenues associated with the decision to accept or reject the special order, assuming Bonilla has excess capacity.
b.
Determine the net advantage or disadvantage (profit increase or decrease) of accepting the order, assuming Bonilla does not have excess capacity.

Quizplus · Accepted Answer

The Answer of Bonilla Ltd., which produces one product, had the following income statement for a recent month:
There were no beginning or ending inventories of work-in-process or finished goods. Bonilla's manufacturing costs were as follows:
  Selling and administrative expenses are all fixed.
Bonilla has just received a special order from a firm in Canada to purchase 800 units at £20 each. The order will not affect the selling price to regular customers.
Required:
  
a.
Prepare a differential analysis of the relevant costs and revenues associated with the decision to accept or reject the special order, assuming Bonilla has excess capacity.
b.
Determine the net advantage or disadvantage (profit increase or decrease) of accepting the order, assuming Bonilla does not have excess capacity.