Parkland Sunglasses sell for about $157 per pair. Suppose that the company incurs the following average costs per pair:

Direct materials $37

Direct labor 14

Variable manufacturing overhead 6

Variable selling expenses 2

Fixed manufacturing overhead $25*

Total cost $84

* $1,950,000 Total fixed manufacturing overhead / 78,000 Pairs of sunglasses

Parkland has enough idle capacity to accept a one-time-only special order from Water Shades for 25,000 pairs of sunglasses at $81 per pair. Parkland will not incur any variable selling expenses for the order.

Requirements

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1.	How would accepting the order affect Parkland's operating income? In addition to the special order's effect on profits, what other (longer-term qualitative) factors should Parkland's managers consider in deciding whether to accept the order?
2	Parkland's marketing manager, Peter Root, argues against accepting the special order because the offer price of $81 is less than Parkland's $84 cost to make the sunglasses. Root asks you, as one of Parkland's staff accountants, to explain whether his analysis is correct. What would you say?

Requirement 1. How would accepting the order affect Parkland's operating income? In addition to the special order's effect on profits, what other (longer-term qualitative) factors should Parkland's 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
	Expected increase in expenses				sunglasses
	Expected		in operating income