The Hilliard Company, a maker of a variety of metal and plastic products, is in the midst of a business downturn and is saddled with many idle facilities. Medina Health Care has approached Hilliard to produce 340,000 nonslide serving trays. Medina will pay $1.40 each. Hilliard predicts that its variable costs will be $1.45 each. Its fixed costs, which had been averaging $1 per unit on a variety of other products, will now be spread over twice as much volume, however. The president commented, "Sure we'll lose $0.05 each on the variable costs, but we'll gain $0.40 per unit by spreading our fixed costs. Therefore, we should take the offer because it represents an advantage of $0.35 per unit. "Suppose the regular business had a current volume of 340,000 units, sales of $714,000, variable costs of $493,000, and fixed costs of $340,000.

Begin by computing the net income (loss) for the current volume (do not include the special order). (Use parentheses or a minus sign for a net loss.)

	Regular
Revenue
Variable costs
Contribution margin
Fixed costs
Net income (loss)

Now compute the net income (loss) when

Hilliard will produce the regular units and the special order. (Use parentheses or a minus sign for net losses.)

	Regular	Special	Total
Revenue
Variable costs
Contribution margin
Fixed costs
Net income (loss)

(Enter all amounts as positive numbers.)

NO, I DO NOT AGREE / YES, I AGREE with the president. If Hilliard were to take on the special order, the total fixed costs will be $____ and the total NET INCOME / NET LOSS will be $____.

With the special order the fixed costs per unit have FALLEN / RISEN from $1 to $____. The moral is: BEWARE OF UNIT FIXED COSTS / UNIT FIXED COSTS ARE ALWAYS ADVANTAGEOUS