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Special Order and Managerial Accounting

Holiday Inc. sells a product that normally sells for $45 per unit. The variable cost is $27 per unit and fixed cost is $270,000. They are currently selling 18,000 units and have the capacity to make 20,000. They are approached about a special order for 2,000 units. The selling price would be $32 per unit and variable costs would be reduced by $2. However, a special piece of equipment would have to be rented for $1,500. What would be the effect on income if they accept the special order?

What if they are currently selling 18,500 units and thus would lose 500 regular sales for this year only?

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Holiday Inc. sells a product that normally sells for $45 per unit. The variable cost is $27 per unit and fixed cost is $270,000. They are currently selling 18,000 units and have the capacity to make 20,000. They are approached about a special order for 2,000 units. The selling price would be $32 per unit and variable costs would be reduced by $2. However, a special piece of equipment would have ...

Solution Summary

The solution explains how to determine the effect on net income of a special order

$2.19