Davis Kitchen Supply produces stoves for commercial kitchens. The costs to manufacture and market the stoves at the company's normal volume of 6,000 units per month are shown in the following table.

Unit manufacturing costs

Variable materials

$

52

Variable labor

77

Variable overhead

27

Fixed overhead

62

Total unit manufacturing costs

$

218

Unit marketing costs

Variable

27

Fixed

72

Total unit marketing costs

99

Total unit costs

$

317

On March 1, the federal government offers Davis a contract to supply 1,000 units to military bases for a March 31 delivery. Because of an unusually large number of rush orders from its regular customers, Davis plans to produce 8,000 units during March, which will use all available capacity. If it accepts the government order, it would lose 1,000 units normally sold to regular customers to a competitor. The government contract would reimburse its "share of March manufacturing costs" plus pay a $48,000 fixed fee (profit). (No variable marketing costs would be incurred on the government's units.) Assuming that the government's "share of March manufacturing costs" will be the proportionate fixed manufacturing cost, what impact would accepting the government contract have on March income? (Select option "increase" or "decrease", keeping without government contract as the base. Select "none" if there is no effect.)

Show less

	Without Government Contract	With Government Contract			Impact
		Regular	Government	Total
Revenue	$2,992,000	$2,618,000				decrease
Variable manufacturing costs
Variable marketing costs
Contribution margin
Fixed manufacturing costs
Fixed marketing costs
Income