Nance Corporation is about to introduce a new product. The following costs would be incurred if 40,000 units are produced and sold each year:

Per UnitTotalVariable production costs$ 10$ 400,000Fixed production costs$ 5$ 200,000Variable selling and administrative costs$ 2$ 80,000Fixed selling and administrative costs$ 3$ 120,000

Nance Corporation uses the absorption costing approach to cost-plus pricing as described in the text.

After introducing the product, the company finds that it has excess capacity. A foreign dealer has offered to purchase 5,000 units of the product at a special price of $21 per unit. This sale would not disturb regular business. If the special price is accepted on the 5,000 units, the effect on total net income for the year should be:

Multiple Choice

$45,000 increase

$30,000 increase

$5,000 increase

$26,250 decrease