Question
Maxi Company is a leading manufacturer of sunglasses. One of Maxis products protects the eyes from ultraviolet rays. An upscale sporting goods store has contacted
Maxi Company is a leading manufacturer of sunglasses. One of Maxis products protects the eyes from ultraviolet rays. An upscale sporting goods store has contacted Maxi about purchasing 28,100 pairs of these sunglasses. Maxis unit manufacturing cost, based on a full capacity of 236,000 is as follows:
Direct materials - $7
Direct labor - 5
Manufacturing overhead (75% fixed) - 19
Total manufacturing costs - $ 31
Maxi also incurs selling and administrative expenses of $73,600 plus $3 per pair for sales commissions. The company has plenty of excess manufacturing capacity to use in manufacturing the sunglasses. Maxis normal price for these sunglasses is $42 per pair. The sporting goods store has offered to pay $32 per pair. Since the special order was initiated by the sporting goods store, no sales commission will be paid.
What would be the effect on Maxis income if the special order were accepted:
Maxis income will ( Increase or Decrease )
Maxis income will increase/decrease by how much?
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