Lighthouse Products produces 300,000 heavy-duty flashlights per year. Lighthouses flashlights are known for value and lasting quality. Based on making 300,000 flashlights per year, the cost per flashlight is as follows:

Direct material $2.25

Direct labor 1.20

Variable overhead 1.80

Fixed overhead 2.50

Total $7.75

A competitor, Modern Night Lights, is interested in purchasing 35,000 flashlights from Lighthouse. Modern has offered to pay $6.00 per flashlight. Lighthouse has the capacity and can easily manufacture the order. Fixed costs in total would not change if the order was accepted. However, several managers at Lighthouse are concerned that there would be very little financial benefit if the company sells the flashlights for only $6.00 each.

Required:

a. Calculate the relevant advantage or disadvantage of selling the 35,000 flashlights to Modern Night Lights. (Hint: calculate the increase or decrease in operating income if the order is accepted.)

b. Briefly discuss the qualitative considerations of selling the flashlights to Modern Night Lights as a special order. Your discussion must identify one factor that supports accepting the special order and one factor that supports rejecting the special order. (Do not copy directly from text.)