Portable Music Ltd manufactures portable MP3 music players at a per-unit cost of:

Direct labour $12

Direct materials 48

Variable factory overhead 25

Fixed factory overhead 45

Total unit cost $130

The company sells each player for $199 and is presently operating at 75% of its capacity of 50,000 units per year. The company has received a special order at a price of $120 per unit from an e-retailer for 1,000 units per month for 1 year only. The units sold to the e-retailer would have a different cover from the companys regular players that would add an extra $5 per unit to direct materials. Portable Music Ltd would have to purchase a new machine for $80,000 to produce the new covers. The machine will have no alternative use or residual value at the end of the year. The sales by the e-retailer would have no impact on the companys regular sales, because of the different cover and markets involved.

Required

a) Should the company accept the special order? Explain.

b) Determine what would be the impact on profits of accepting the order?