a.

Step 1: Calculate total amount of fixed costs before the addition of plant capacity:

Current total cost per unit

$ 60

Less: Variable cost per unit 

          48

Fixed cost per unit

$ 12

Units at full capacity

* 60,000

Total fixed costs 

$ 720,000

Step 2: Calculate fixed costs per unit after the addition of plant capacity:

Original total fixed cost

$ 720,000

Annual increase in fixed costs ($7,800,000 / 10 years) 

      780,000 

Total fixed costs 

$ 1,500,000

Fixed costs per unit at full capacity: $1,500,000 / 100,000 = $ 15

a.

Step 3: Calculate cost per unit after the addition of plant capacity:

Variable cost per unit 

$ 48

Fixed cost per unit

   15

Cost per unit

$ 63

b.

Relevant costs associated with the special order from LawnPro.com would include variable manufacturing costs per motor ($ 48) and the costs associated with storing                     the motors in the HMI warehouse to await shipment.  Fixed costs are not relevant because the capacity has already been added (sunk cost) and the commissions and freight are not relevant because they will not be paid (avoidable cost) on the special order.

c.

Yes, assuming no other option currently exists to provide more than $12 contribution margin per motor or that the costs associated with storing each motor in the HMI warehouse will not exceed $12 per motor.

Selling price per unit

$ 60

Less variable cost per unit

   48

Contribution margin per unit

$ 12

d.

No, because the full absorption cost per unit will indicate a loss on the sale.

Selling price per unit

$ 60

Less full cost per unit 

   (63)

Loss per unit

$ (3)

e.

Key qualitative factors to consider would include whether HMI's current customers would expect the same $60 price if they became aware of the sale, whether HMI's current customers would stop doing business with them if they became aware of the sale, will LawnPro.com expect this price of future additional orders if the Web site sales prove to be successful, whether there are there more profitable opportunities on the horizon for the use of the new additional capacity, or whether the sale at this discounted price is in violation of the Robinson-Patman Act.