If Wham accepts the offer from J-Mart, what will be the effect on firm

profits?

Wham Products, a maker of specialty products, is currently manufacturing and selling a product called Gory Goo. A discount department store, 1-Mart, has made a one-time offer to purchase 70,000 units of Gory Goo at $4.50 per unit for sale in 3-Mart stores. Since Wham has enough excess capacity, management would naturally like to produce and sell the additional units. But there is concern that $4.50 is below Gory Goo's unit manufacutring costs and well below it's normal $8.55 selling price. Last year, Gory Goo's unit sales were 390,000 and its total manufacturing costs were: Direct material $312,000 Direct labor 234,000 Variable overhead 312,000 Fixed Overhead 1,365,000 Total manufacturing $2,223,000 In addition to the manufacturing costs, there were selling and administrative expenses associated with Gory Goo. Variable selling and administrative expenses were $1.60 per unit, and fixed selling and administrative expenses were $214,500 For the special order, variable manufacturing costs per unit are expected to be the same as they were last year, but because the special order units are being sold directly to the J.Mart chain, variable selling and administrative expenses are expected to be only $1.10 per unit. All fixed costs are not expected to change, Even though the special order units will have a different name and packaging, Wham's marketing group still believes that approximately 6,000 units from the special order will be sold to customers who would normally purchase Gory Goo from Wham. REQUIRED If Wham accepts the offer from J-Mart, what will be the effect on firm profits