Farrow Company reports the following annual results. Contribution Margin Income Statement Per Unit Annual Total Sales (440,000 units) $ 15.00 $ 6,600,000 Variable costs Direct materials 2.00 880,000 Direct labor 4.00 1,760,000 Overhead 2.50 1,100,000 Contribution margin 6.50 2,860,000 Fixed costs Fixed overhead 2.00 880,000 Fixed general and administrative 1.50 660,000 Income $ 3.00 $ 1,320,000 The company receives a special offer for 44,000 units at $12 per unit. The additional sales would not affect its normal sales. Variable costs per unit would be the same for the special offer as they are for the normal units. The special offer would require incremental fixed overhead of $176,000 and incremental fixed general and administrative costs of $189,000. 

(a) Compute the income or loss for the special offer. (b) Should the company accept or reject the special offer?

Answer rating: 100% (QA)

To solve this problem we need to compute the income or loss for the special offer and then determine ... View the full answer