Pardo Company produces a single product and has capacity to produce 130,000 units per month. Costs to produce its current monthly sales of 104,000 units follow. The normal selling price of the product is $108 per unit. A new customer offers to purchase 26,000 units for $64.80 per unit. If the special offer is accepted, there will be no additional fixed overhead and no additional fixed general and administrative costs. The special offer would not affect its normal sales.

	Per Unit	Costs at 104,000 Units
Direct materials	$ 12.50	$ 1,300,000
Direct labor	15.00	1,560,000
Variable overhead	12.00	1,248,000
Fixed overhead	17.50	1,820,000
Fixed general and administrative	15.00	1,560,000
Totals	$ 72.00	$ 7,488,000

(a) Compute the income from the special offer. (b) Should the company accept the special offer?

SPECIAL OFFER ANALYSIS	Per Unit	Total
Variable costs
Contribution margin
Fixed costs
Fixed overhead
Fixed general and administrative
Income