The Killian Company manufactures two skin care lotions. Liquid Skin and Silken Skin, out of a joint process. The joint (common) costs incurred are $420,000 for a standard production run that generates 180,000 gallons of Liquid Skin and 120,000 gallons of Silken Skin. Addi¬

tional processing costs beyond the split-off point are $1.40 per gallon for Liquid Skin and

$0.90 per gallon for Silken Skin. Liquid Skin sells for $2.40 per gallon while Silken Skin sells for $3.90 per gallon.

The Overnight Hotel Chain has asked the Killian Company to supply it with 240,000 gallons of Silken Skin at a price of $3.65 per gallon. Overnight plans to have the Silken Skin bottled in 1.5-ounce personal-use containers that are supplied in each of its hotel rooms as part of the complimentary personal products for guest use.

If Killian accepts the order, it will save $0.05 per gallon in packaging of Silken Skin.

There is sufficient excess capacity for the order. However, the market for Liquid Skin is saturated, and any additional sales of Liquid Skin would take place at a price of $1.60 per gallon.

Required:

1. What is the profit normally earned on one production run of Liquid Skin and Silken Skin?

2. Should Killian accept the special order? Explain.