Your Company makes a single product. It currently sells 30,000 units each year. The company has the capacity to produce 40,000 units per year. Per unit costs to produce and sell one unit at that activity level are:

Direct material $20

Direct labor $10

Variable manufacturing overhead $5

Fixed production costs $7

Variable selling costs $8

Fixed selling and administrative costs $2

The regular selling price for one unit is $60. A special order has been received to purchase 8,000 units at 15% off the regular selling price. If this special order were accepted, the variable selling expense would be reduced by 25%. However, the material cost would increase by $2 per unit and Your Company would have to purchase a specialized machine to engrave each unit in the special order. This machine would cost $12,000 and it would have no use after the special order was filled. If the special order is accepted, what is the effect on net operating income?

Answer rating: 100% (QA)

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