Questions -
Q1. Headwind Corp. makes lawn and garden equipment. Lawn Care put in a special order for 20,000 weed eaters for $15 each. Normally, Headwind sells the weed eaters for $20 each. In addition, Lawn Care wants their own logo on the weed eaters. Cost information is as follows:
Direct Materials $8.99
Direct Labor 3.00
Variable overhead 2.00
Fixed overhead 3.50
To affix the Lawn Care logo, Headwind will have to lease a special machine for three months (the time it will take to make the order) at a cost of 2,000 per month.
If Headwind accepts the special order, what will be the impact on operating income?
Q2. Hauserr Company makes 30,000 mowers each year. To date, all components have been made in house. All fixed costs are unavoidable. Recently, Fester Fabrication offered to supply Hauserr with the metal handles for the mowers for $5 each. Hauserr analyzed the cost of the handles and came up with the following per unit information:
Direct Materials $1.60
Direct Labor 0.50
Variable overhead 1.75
Fixed overhead 1.30
A. If Hauserr accepts Fester's offer, operating income will be $_____________________
B. What is the highest price that Hauserr would pay an outside company for the handles?