Melrose Sunglasses sell for about $152 per pair. Suppose that the company incurs the following average costs per? pair:

Direct materials

$36

Direct labor

16

Variable manufacturing overhead

8

Variable selling expenses

2

Fixed manufacturing overhead

25

*

Total cost

$87

* $2,350,000 Total fixed manufacturing overhead / 94,000 Pairs of sunglasses

Melrose has enough idle capacity to accept a? one-time-only special order from Rolling Shades for 18,000 pairs of sunglasses at $ 82 per pair. Melrose will not incur any variable selling expenses for the order.

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

Requirement 1. How would accepting the order affect Melrose operating? income? In addition to the special? order's effect on? profits, what other? (longer-term qualitative) factors should Melrose managers consider in deciding whether to accept the? order?

Prepare the analysis to determine the effect on operating income. ?(Enter decreases to profits with a parentheses or minus? sign.)

	Expected increase in revenues				sunglasses x
	Expected increase in expenses				sunglasses x
	Expected		in operating income