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Jikaze Ltd. is currently operating at full capacity and it manufactures and sells brooms for local market. Currently, the production volume is 100,000 brooms per annum...

      

Jikaze Ltd. is currently operating at full capacity and it manufactures and sells brooms for local market.
Currently, the production volume is 100,000 brooms per annum with the following cost structure:
Sh. "000" Sh. "000"
Sales 20,000
Marginal costs: Labour 8,000
Material 5,000 (13,000)
Contribution 7,000
Fixed costs (3,000)
Net profit 4,000

Additional information:
1. Each broom is currently sold at sh.200
2. An opportunity has arisen to supply 30,000 brooms per annum at sh.180 each.
3. Acceptance of this special order will incur extra costs of sh.80,000 per annum for the hire of additional machinery.
4. Jikaze Ltd. will pay an overtime premium of 20% for the extra direct labour.

Required:
Advise Jikaze Ltd. on whether the offer should be accepted or rejected.

  

Answers


Francis
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francis1897 answered the question on November 14, 2022 at 07:46


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