(Special order decision) Really Wired produces 18-gauge barbwire, which is retailed through farm supply companies. Presently, the company has the capacity to produce 2,000 tons of wire per year. The firm is operating at 85 percent of annual capacity, and at this level of operations the cost per ton of wire is as follows:

The average sales price for the output produced by the firm is $400 per ton. The firm has been approached by an Australian company about supplying 200 tons of wire for a new game preserve. The company has offered Really Wired $240 per ton for the order (FOB Really Wired’s plant). No production modi¬ fications would be necessary to fulfill the order from the Australian company.

a. What costs are relevant to the decision to accept this special order?

b. What would be the dollar effect on pretax income if this order is accepted?LO1

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Direct material Direct labor Variable overhead Fixed overhead Total $160 40 25 80 $305