Question
Foster Paper Products, Inc., manufactures boxed stationary for sale to specialty shops. Currently, the company is operating at 90 percent of capacity. A chain of
Foster Paper Products, Inc., manufactures boxed stationary for sale to specialty shops. Currently, the company is operating at 90 percent of capacity. A chain of drugstores has offered to buy 30,000 boxes of Fosters thank-you notes as long as the box can be customized with the drugstore chains logo. While the normal selling price is $6.00 per box, the chain has offered just $3.10 per box. Foster can accommodate the special order without affecting current sales. Unit cost information for a box of thank-you notes follows: Direct materials: $1.87 Direct labor: 0.33 Variable overhead: 0.08 Fixed overhead: 2.10 Total cost per box $4.38 Fixed overhead if $420,000 per year and will not be affected by the special order. Normally, there is a commission of 5 percent of price; this will not be paid on the special order since the drugstore chain is dealing directly with the company. The special order will require additional fixed costs of $14,600 for the design and setup of the machinery to stamp the drugstore chains logo on each box.
What is the effect on operating income for the company as a whole if Foster chooses to accept the special order? _________________
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