Ama Jnr. Company Nigeria Ple manufactures shoes. Based on current production levels, the company prepares the following predicted income statement for the year ending 31st December 2012. Sales during the year amounted to N100 million manufacturing cost of goods sold totaled N60 million, and administrative and selling expenses amounted to N31 million. Ama Jnr. manufacturing cost is made up of fixed cost of N24 million. The administrative and selling expenses include fixed cost of N23 million and marginal shipping costs of 3% of sales. The company had sold 80% of its installed capacity of 2.5 million pairs. The company received an "order" from an overseas based business magnate, Mrs. Egwu Ngo Imma, who has offered to buy 16% of the company's installed capacity at N44 per pair. Mrs. Egwu requested that her initials. ENI be boldly inscribed on each shoe and this will cost the company of Ama Jnr an additional N2 per pair. The buyer had agreed to pay half of her shipping expenses. The GM. of Ama Jnr. Company is absolutely very reluctant to accept the "order" because the N44 price is below the company's total unit cost. You are therefore, required to: (a) prepared comparative income statements, using the contribution margin technique (b). By what percentage would operating income increase or decrease if the "order" had been accepted? (c). What is the profit volume ratio of the company when (1). The "order" is rejected (ii). The "order" is accepted (d). Do you agree with the GM's decision? Why?
