Ace produces and sells energy drinks. Its contribution margin income statement follows.

A potential customer offers to buy 50,000 units for $3.00 each. These sales would not affect the company’s sales through its normal channels. Details of the special offer follow.

∙ Direct materials cost per unit and variable overhead cost per unit would not change.
∙ Direct labor cost per unit would be $0.48 because the offer would require overtime pay.
∙ Accepting the offer would require incremental fixed general and administrative costs of $5,000.
∙ Accepting the offer would require no incremental fixed overhead costs.

Required

1. Compute income from the special offer.
2. Should the company accept or reject the special offer?

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Contributlon Margin Income Statement For Year Ended December 31 Per Unit Annual Total Sales (300,000 units).. $4.00 $1,200,000 Variable costs Direct materials. 1.28 384,000 Direct labor..... 0.32 96,000 Variable overhead. Contribution margin. 0.74 222,000 1.66 498,000 Fixed costs Fixed overhead.... 0.24 72,000 Fixed general and administrative... 0.30 90,000 Income... $1.12 $ 336,000