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Henry's Hats manufactures luxury hats sold to boutique stores for $100 each. The plant capacity is 100,000 units annually, but normal volume is 70,000 units.

Henry's Hats manufactures luxury hats sold to boutique stores for $100 each. The plant capacity is 100,000 units annually, but normal volume is 70,000 units. Unit and total costs at normal volume are as follows:

Type of Cost

Unit Costs

Total Costs

Direct materials

$25.00

$1,750,000

Direct labor

$20.00

$1,400,000

Manufacturing support

$30.00

$2,100,000

Selling and administrative

$15.00

$1,050,000

Total costs

$90.00

$6,300,000

Fixed manufacturing support costs are $2,000,000, and fixed selling and administrative costs are $800,000.

A customer offers to buy 20,000 units at $80 each, with bulk packaging reducing variable selling and administrative costs by 50%.

Required: Assess if Henry's Hats should accept the special order. Prepare a comprehensive cost analysis to support your decision.

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