Okoro Company is a manufacturer of beach towels. Currently the company is able to produce 10,000 towels per month, although actual production averages 8,500 per month. Recently, the company was approached by a national hotel chain with an offer-the hotel chain would like to purchase 2,000 towels at a reduced selling price of $8.50 per towel. However, since the hotel chain approached Okoro, there will be a saving of variable selling costs with the order.
Accepting the order will mean that Okoro will be unable to sell all of the usual 8,500 towels to its existing customers. Instead, the company will only be able to provide 8,000 towels to those customers.
Normal per-unit data is as follows:
Selling price .................................... $10.00
Direct materials ................................ 4.00
Direct labour .................................... 0.75
Variable selling cost ........................... 0.70
Variable overhead .............................. 1.25
Fixed overhead .................................. 1.30
Required:
1. How much will income increase or decrease by accepting the order?
2. What nonfinancial factors should Okoro consider before accepting a special order?