Special order decision making
Husky industries has been approached by a new customer who wants to place a special order of5,000 units of its product at a price of $52.00 a unit. The customer needs delivery within one month. This is an "all or nothing" order. Husky cannot provide only part of the order.
Husky can produce 35,000 units per month and has 1,000 finished goods in inventory. Sales to regular customers are expected to be 32,500 units for the upcoming month.
Husky's regular selling price is $70.00 per unit. Total manufacturing costs are $46.00 per unit which includes $11.00 per unit of fixed overhead. Regular Marketing costs include $12.00 per unit for variable costs and $4.00 per unit for fixed costs. Because of the nature of the special order, variable marketing costs would be $8.00 per unit.
A. How many units of sales to regular customers would Husky lose if it took on the special order?
B. What would be the impact on operating income if Husky accepted the special order?