Jones Products manufactures and sells to wholesalers approximately 500,000 packages per year of underwater markers at $3.84 per package. Annual costs for the production and sale of this quantity are shown in the table.

Direct materials $ 640,000

Direct labor 160,000

Overhead 480,000

Selling expenses 200,000

Administrative expenses 133,000

Total costs and expenses $ 1,613,000

A new wholesaler has offered to buy 83,000 packages for $3.44 each. These markers would be marketed under the wholesalers name and would not affect Jones Products sales through its normal channels. A study of the costs of this additional business reveals the following:

Direct materials costs are 100% variable.

Per unit direct labor costs for the additional units would be 50% higher than normal because their production would require overtime pay at 1 times the usual labor rate.

25% of the normal annual overhead costs are fixed at any production level from 450,000 to 600,000 units. The remaining 75% of the annual overhead cost is variable with volume.

Accepting the new business would involve no additional selling expenses.

Accepting the new business would increase administrative expenses by a $2,000 fixed amount.

Per Unit Amounts Total Normal Volume Normal Volume New Business New Business Combined Sales 3.84 S 3.44 $ 1,920,000 285,520S 2,205,520 Variable costs Direct labor Direct materials Variable overhead 0.000 0.000 1,920,000 285,520 2,205,520 Fixed costs 2,000 Fixed overhead Selling expenses Administrative expenses 2,000 2,000 2,000 4,000 4,000