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Lybrand Company is a leading manufacturer of sunglasses. One of Lybrand's products protects the eyes from ultraviolet rays. An upscale sporting goods store has contacted
Lybrand Company is a leading manufacturer of sunglasses. One of Lybrand's products protects the eyes from ultraviolet rays. An upscale sporting goods store has contacted Lybrand about purchasing 15,000 pairs of these sunglasses. Lybrand's normal price for these sunglasses is $40 per pair. The unit manufacturing cost, based on a full capacity of 100,000 units, is as follows: Direct Materials $ 6 Direct Labor 4 Manufacturing Overhead (40% fixed) 15 TOTAL manufacturing costs $25 The company also incurs selling and administrative expenses of $75,000 in total plus $2 per pair for commissions. Lybrand has plenty of excess manufacturing capacity which can be used to manufacture the 15,000 sunglasses. The sporting goods store has offered to pay $35 per pair. Since the special order was initiated by the sporting goods store, no commission will be paid to a sale rep. What is the effect on Lybrand's income if the special order is taken? $240,000 increase $25,000 decrease $75,000 decrease
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