Reference no: EM13604276

This is a special order problem that also requires that you use the high low method to estimate some cost function parameters. For guidance, you may want to revisit your cost estimation lecture notes and study problems. Also, the example in the special order lecture and study problems 5-A1 and 5-B1 should help. As with almost all of the analyses that we have done, determining variable and fixed costs is critical. ______________________________________________________ Huang Automotive is presently operating at 75% of capacity. The company recently received an offer from a Korean truck manufacturer to purchase 25,500 units of a power steering system component for $190 per unit. Peter Wu, vice-president of sales, noted that since the truck manufacturer approached Huang, there will be no sales commission, normally 2% of sales. Although he recognizes that there will be an additional $2.25 shipping cost for each component, he thinks that accepting the order will get the company's "foot in the door" of an expanding international market. T.J. Chan, vice-president of engineering, feels that any new market should first show its profitability and that the $190 per unit offer is below the unit cost of the component. She also points out that there will be additional setup costs of $230,000 and that Huang will have to lease some special equipment for $260,000. Huang's sales, production, and cost information for the last two years for the component are as follows: 202,000 units 228,000 units Sales $54,540,000 $61,560,000 Direct material costs 17,675,000 19,950,000 Direct labor costs 5,858,000 6,612,000 Overhead costs 23,620,000 25,180,000 Selling and administrative costs 11,630,000 12,020,000 Total costs $58,783,000 $63,762,000 Total costs per unit $291.00 $279.66 What would the expected profit be on the special order (use a negative sign for a loss)?