Question
Tharp Industries sells wood pellets at a normal selling price of $200 per ton. The variable cost per ton is $70, and the company's total
Tharp Industries sells wood pellets at a normal selling price of $200 per ton. The variable cost per ton is $70, and the company's total fixed cost is $100,000 per month. The company has excess capacity of 50,000 tons per month. Management was recently contacted by a potential buyer with whom they had no prior experience. The buyer offered to buy a special order of 200 tons at a discount price of $146 per ton. The order calls for a lower quality of raw materials that would decrease variable costs associated with it by $4 per ton over the normal variable cost. The special order would also increase fixed costs by $20,000. If the special order is accepted, operating income will decrease by $_____.
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