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Huang Automotive Is presently operating at 75% of capacity. The company recently received an offer from a Korean tmck manufacturer to purchase 23,000...

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Using the high-low method to determine cost behavior, what would the expected profit be on the special order (use a negative sign for a loss)?

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Huang Automotive Is presently operating at 75% of capacity. The company recently received an offer from a Korean tmck manufacturer to purchase 23,000 units of a power steering system component for $195 per unit. Peter Wu, vice-presiden
of sales, notes that although there will be an additional $2.00 shipping cost for each component, he thinks that accepting the order will get the company's I'foot in the door" of an expanding international market. Huang's production and cost information for the last two years for the component are as follows: 199,000 units 239,000 unils Direct material costs $17,114,000 $20,554,000 Direct labor oosts 4,577,000 5,497,000 Overhead costs 22,843,000 25,123,000 Selling and administrative costs 7,958,000 8,468,000 Total costs $52,522,000 $59,642,000 Total costs per unit $263.93 $249.55 T.J. Chan, vioe»president of engineering, feels that any new market should first show its profitability and that the $195 per unit offer is not only below the regular $250 selling price, but it‘s below the unit cost of the component. She also points
out that there will be additional setup costs of $225,000 and that Huang will have to lease some special equipment for $260,000.

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Answer Expected profit (loss) be on the special... View the full answer

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