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 3,830 units at $24 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.) Reject Order Accept Order Net Income Increase (Decrease) Revenues $ $ $ Costs—Manufacturing Shipping Net income/(loss) $ $ $ The special order should be .

Explanation / Answer

It is given that Harley has excess capacity

Contribution per unit of Special order= Selling price - Variable cost = $24 - $19 - $1 (special shipping costs) = $4 per unit

The special order should be accepted since it results in net income of $15320

Reject order Accept order Net income Increase (Decrease) Revenue $ 0 91920 (3830*24) 91920 Costs- Manufacturing 0 -72770 (3830*19) -72770 Shipping 0 -3830 (3830*1) -3830 Net income/(loss) 0 15320 15320

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