Maui Preston sunglasses sell for about $152 per pair. Suppose that the company incurs the following average costs per pair: Maui Preston has enough idle capacity to accept a one-time-only special order from Colorado Glasses for 17,000 pairs of sunglasses at $82 per pair. Maui Preston will not incur any variable marketing expenses for the order.

Direct materials $41

Direct labor 15

Variable manufacturing overhead 9

Variable marketing expenses 2

Fixed manufacturing overhead 20

*

Total cost $87

* $2,150,000 total fixed manufacturing overhead 107,500 pairs of sunglasses

Requirements

1.	How would accepting the order affect Maui Preston's operating income? In addition to the special order's effect on profits, what other(longer-term, qualitative) factors should Maui Preston's managers consider in deciding whether to accept the order?
2.	Maui Preston's marketing manager, Jim Revo, argues against accepting the special order because the offer price of $82 is less than Maui Preston's $87 cost to make the sunglasses. Revo asks you, as one of Maui Preston's staff accountants, to explain whether his analysis is correct.