Brief Exercise 23-3 In Harley Company it costs $31 per unit ($18 variable and $1

Question

Brief Exercise 23-3 In Harley Company it costs $31 per unit ($18 variable and $13 fixed) to make a product that normally sells for $49. A foreign wholesaler offers to buy 3,560 units at $26 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.

Reject Order Accept Order Net Income

Increase (Decrease)

Revenues   

Net Income Increase (Decrease)

Revenues Costs

Manufacturing

Shipping

Net income/(loss)

The special order should be accepted.

Explanation / Answer

The special order should be accepted as net income would increase by $ 24,920

Reject Order Accept order Increase / ( Decrease) Sales revenue ( 3,560 x $ 26) - $ 92,560 $ 92,560 Variable costs Manufacturing ( 3,560 x $ 18) - $ 64,080 $ 64,080 Shipping ( 3,560 x $ 1) $ 3,560 $ 3,560 Contribution margin $ 24,920 $ 24,920 Additional fixed costs - - - Net operating income - $ 24,920 $ 24,920

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