Waterloo Co. sells product P-14 at a price of $48 a unit. The per-unit cost data are direct materials $15, direct labour $10, and overhead $12 (75% variable). Waterloo Co. has sufficient capacity to accept a special order for 40,000 units, but at a discount of 10% from the regular price. Selling costs associated with this order would be $3 per unit. There are no selling costs on its regular orders.

a) Should Waterloo Co. should accept the special order? Show your calculations.

b) Assume the same information as part a) except that Waterloo has no excess capacity. Indicate the net income (loss) that Waterloo would realize by accepting the special order.

c) Assume the information in part b) except that the company could rent the special purpose machine that is required for this order for $100,000. This would allow the company to fulfill its regular orders and this special order on a one time basis.

1. Should the company go ahead and rent this machine and accept the special order?

2. What is the highest price the company can afford to pay to rent the machine to be indifferent as to whether to accept the special order or not. d) List two qualitative considerations that management should consider in deciding whether to accept this offer beyond its immediate impact on profits.

d. List two qualitative considerations that management should consider in deciding whether to accept this offer beyond its immediate impact on profits.