Hi-Cast Corporation manufactures fishing rods. Part of Hi-Cast’s sales success comes from a patented material, tuflex, used to make the fishing rods. Tuflex allows the fishing rods to be very flexible, yet nearly unbreakable. Hi-Cast sells about 150,000 fishing rods annually to wholesalers for $18 each. A major department store chain, Sale-Mart, is interested in purchasing 30,000 fishing rods that would bear the Sale-Mart’s brand name. Sale-

Mart is willing to pay only $9 per fishing rod, considerably less than Hi-Cast’s normal selling price. Although Hi-Cast has plenty of plant capacity available to make the additional 30,000 fishing rods, the company’s manufacturing cost is $11 per fishing rod, or $2 more per rod than Sale-Mart is willing to pay. Sale-Mart has indicated that the 30,000 fishing rods do not have to be as flexible and tough as the regular Hi-Cast rods. The following per unit information pertains to Hi-Cast’s cost to produce 150,000 fishing rods:

Required: By what amount would Hi-Cast’s operating income increase or decrease if the company accepts the special order?

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Direct material: Tuflex Other material Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total $ 4 1 3 1 $11 If fiberglass is used in place of tuflex, the direct material cost can be reduced by $2 per rod.