In Harley Company it costs $30 per unit ($19 variable and $11 fixed) to make a p

Question

In Harley Company it costs $30 per unit ($19 variable and $11 fixed) to make a product that normally sells for $49. A foreign wholesaler offers to buy 4,630 units at $25 each. Harley will incur special shipping costs of $1 per unit. Assuming that Harley has excess operating capacity.

Indicate the net income (loss) Harley would realize by accepting the special order. (If an amount reduces the net income for Increase (Decrease) column then enter with a negative sign preceding the number e.g. -15,000 or parenthesis, e.g. (15,000). Enter all other amounts in all other columns as positive and subtract where necessary.)

Explanation / Answer

(All amounts in $) Reject Order Accept Order Net Income Increase (Decrease) Revenues 226870 162050 -64820 Costs - Manufacturing -138900 -138900 0 Costs - Shipping 0 -4630 -4630 Net Income/(Loss) 87970 18520 -69450 By rejecting the order, Harley saves on $ 69,450, hence the special order should not be accepted. This working is based on the assumption that there is no other production except 4,630 units as given above.

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