MAX produces and sells power adapters. Its contribution margin income statement follows.

A potential customer offers to buy 10,000 units for $5.80 each. These sales would not affect the company’s sales through its normal channels. Details of the special offer follow.

∙ Variable costs per unit would not change.
∙ Accepting the offer would require incremental fixed overhead costs of $2,200.
∙ Accepting the offer would require incremental fixed general and administrative costs of $1,800.

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 (55,000 units) . $8.00 $440,000 Variable costs Direct materials . 1.50 82,500 Direct labor..... 2.10 115,500 Variable overhead 1.90 104,500 Contribution margin.... 2.50 $137,500 Fixed costs Fixed overhead...... 0.50 27,500 Fixed general and administrative... 1.20 66,000 Income.... $0.80 $ 44,000