King Henry Company's total production capacity is 4,500 units per month.

Currently, the company plans to make and sell 4,000 units per month for the next 12 months.

The company's sales manager, Duke James, received an offer from a new customer to purchase 250 units at $96 per unit for the next five months. He is reluctant to accept this offer, because the normal selling price is $105. Also, the company's absorption costing system shows that manufacturing costs are $80 per unit, and selling costs are $16 per unit. The sales manager is concerned that the low offer price will not help the company cover its high manufacturing fixed costs.

MULTIPLE CHOICE:

Q) Should the company accept the offer?

Yes, because operating income will most likely increase.

No, because the company's ROI will most likely decrease.

Yes, because excess capacity will decrease.

All of the other answers are incorrect.

No, because the company will only break even on this offer.