Smooth Brew manufactures cappuccino makers. For the first eight months of 2006, the company reported the following

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Question:

Smooth Brew manufactures cappuccino makers. For the first eight months of 2006, the company reported the following operating results while operating at 80% of plant capacity:

Sales (120,000 units) $6,000,000

Cost of goods sold 3,600,000

Gross profit 2,400,000

Operating expenses 1,800,000

Net income $ 600,000

An analysis of costs and expenses reveals that variable cost of goods sold is $25 per unit and variable operating expenses are $10 per unit.

In September, Smooth Brew received a special order for 5,000 machines at $40 each from a major coffee shop franchise. Acceptance of the order would result in $2,000 of shipping costs but no increase in fixed expenses.

Instructions

1. Prepare an incremental analysis for the special order.

2. Should Smooth Brew accept the special order? Justify your answer.