Hawk Rollers Company produces bikes. Each bike has the following costs: The fixe

Question

Hawk Rollers Company produces bikes. Each bike has the following costs: The fixed manufacturing overhead is common to the company. The production capacity is 386,000 units per year. However, Hawk Rollers expects to produce only 287,000 units for the coming year. The company also has fixed selling costs of $574,000 per year and variable selling costs of $2 per unit sold. Each bike normally sells for $35 each. Recently, a customer offered to buy 49,000 bikes at a special price of $21 each. This order would not have any variable selling costs because no sales commissions are involved. Based on a quantitative analysis, should the company accept the special order? Do not enter dollar signs or commas in the input boxes. Use the negative sign for values that must be subtracted and negative values.

Explanation / Answer

Incremental operating revenue of Special Order Qty Rate Value Nos $/per unit $ Total Revenue          49,000               21          1,029,000 Total Material          49,000               12           (588,000) Total Direct labour          49,000                 7           (343,000) Total Variable Overhead          49,000                 8           (392,000) Incremental operating income           (294,000) The special order should not be accepted.

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