QUESTION:

Harry Inc. produces and sells vinyl records to disco fans. A customer asked him to produce 5,000 copies of Elvis material to distribute in Europe. The company has enough capacity to do the job and the customer offers to pay $16.00 per unit. The regular price is $24.00 per unit.

Unit information for Harry's normal level of production is as follows:

Direct materials	$6.00
Direct labour	$5.00
Variable overhead	$4.00
Fixed overhead	$3.00
Total	$18.00

Fixed overhead will not be effected by this special order.

Using the above information answer the following questions.

Should Harry Inc. accept or reject the special order?

Enter the letter A for accept.

Enter the letter B for reject.

Would operating income increase or decrease if the special order was accepted?

Enter the letter A for increase.

Enter the letter B for decrease.

By how much will operating income increase or decrease by if the order was accepted?

Enter your answer as a positive number even if operating income would decrease.

Now assume that the new customer would like their own brand name printed on each record. If Harry Inc. accepts the order, it will incur a one-time fixed cost of $5,500 for the rental of an imprinting machine.

If Harry Inc. accepts the special order by what amount will the operating income increase or decrease?

If the operating income will DECREASE enter your answer as a NEGATIVE number. For example, if your answer is a decrease of $10,000.00, then enter -10000.00

If the operating income will INCREASE enter your answer as a POSITIVE number.