Problem 2

Lorraine manufactures a single product with the following full unit costs for 3,000 units:

Direct materials	$80
Direct labor	40
Manufacturing overhead (40% variable)	120
Selling expenses (60% variable)	40
Administrative expenses (10% variable)	20
Total per unit	$300

A company recently approached Lorraine with a special order to purchase 500 units for $300. Lorraine currently sells the models to dealers for $550. Capacity is sufficient to produce an extra 450 units. No selling expenses would be incurred on the special order.

Required:

Should Lorraine accept the special order? Determine the impact on profit of accepting the order.