Harcourt Manufacturing (HM) has the capacity to produce 12,000 fax machines per year. HM currently produces and sells 8,000 units per year. The fax machines normally sell for $200 each. Modem Products has offered to buy 3,000 fax machines from HM for $110 each. Unit-level costs associated with manufacturing the fax machines are $35 each for direct labor and $60 each for direct materials. Product-level and facility-level costs are $60,000 and $75,000, respectively. How much would profit increase (decrease) if HM accepted this special order?

Multiple Choice

• $45,000

• $288,000

• ($45,000)

• ($288,000)

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2)

Harcourt Manufacturing (HM) has the capacity to produce 12,000 fax machines per year. HM currently produces and sells 8,000 units per year. HM currently leases its excess capacity for a rental fee of $46,000. The fax machines normally sell for $200 each. Modem Products has offered to buy 3,000 fax machines from HM for $110 each. Unit-level costs associated with manufacturing the fax machines are $35 each for direct labor and $60 each for direct materials. Product-level and facility-level costs are $60,000 and $75,000, respectively. Based on this information (ignore qualitative characteristics)

Multiple Choice

• HM should reject the offer because accepting it will reduce profitability by $1,000.

• HM should accept the offer because accepting it will contribute $12,000 to profit.

• HM should reject the offer because accepting it will reduce profitability by $12,000.

• HM should accept the offer because accepting it will contribute $46,000 to profit.