Exercise 23-14 (Algo) Special offer pricing LO P7

Pardo Company produces a single product and has capacity to produce 105,000 units per month. Costs to produce its current monthly sales of 84,000 units follow. The normal selling price of the product is $112 per unit. A new customer offers to purchase 21,000 units for $63.90 per unit. If the special offer is accepted, there will be no additional fixed overhead and no additional fixed general and administrative costs. The special offer would not affect its normal sales.

	Per Unit	Costs at 84,000 Units
Direct materials	$ 12.50	$ 1,050,000
Direct labor	15.00	1,260,000
Variable overhead	13.00	1,092,000
Fixed overhead	17.50	1,470,000
Fixed general and administrative	13.00	1,092,000
Totals	$ 71.00	$ 5,964,000

(a) Compute the income from the special offer. (b) Should the company accept the special offer?