2 cuLearn Carleton.ca Academic Support Library Carleton Central MyCarleton Email Problem 2 (6 marks) (12 minutes) The Melville Company produces a single product called a Pong. Melville has the capacity to produce 60,000 Pongs each year. If Melville produces at capacity, the per unit costs to produce and sell one Pong are as follows: Direct materials $15 Direct labour 12 8 9 Variable factory overhead Fixed factory overhead Variable selling expense Fixed selling expense 8 3 The regular selling price for one Pong is $80. A special order has been received by Melville from Mowen Company to purchase 6,000 Pongs during 20x5. If this special order is accepted, the variable selling expense will be reduced by 75%. However, Melville will have to purchase a specialized machine to engrave the Mowen name on each Pong in the special order. This machine will cost $9,000 and it will have no use after the special order is filled. Required - Assume Melville can sell 58,000 units of Pong to regular customers during 20x5. If Mowen Company offers to buy the special order units at $70 per unit, what will the effect of accepting the special order on Melville's net income for 20x5 be? Would you recommend they accept the offer? Use the incremental approach in your calculations 1 i B III q CH S an 57