Answer:
Harcourt Manufacturing (HM)
1. Based on this information (ignore qualitative characteristics) :________.
a. HM should reject the offer because accepting it will reduce profitability by $2,000.
2. A company should accept a special order if: _______.
a. additional revenue is greater than relevant costs.
Explanation:
a) Data and Calculations:
Production capacity for fax machines per year = 10,000
Current production units per year = 7,000
Excess capacity = 3,000 (10,000 - 7,000)
Rental fee for excess capacity = $12,000
Selling price of the fax machine per unit = $100
Unit-level costs:
Direct labor = $15
Direct materials = $40
Total cost per unit = $55
Special order = 2,000 units
Product-level costs= $50,000
Facility-level costs = $65,000
Total revenue from special order = $120,000 (2,000 * $60)
Total variable cost for special order = 110,000 (2,000 * $55)
Contribution margin from special order $10,000 (2,000 * $5)
Comparison with Rental fee $12,000 and $10,000
