Problem 3

The Mixed Products Company sells one of its products for $180 per unit. The Company incurs the following costs per unit:

Direct materials $40.00

Direct labor 18.00

Variable manufacturing overhead 7.50

Variable selling expenses 4.00

Fixed manufacturing overhead 25.00*

* $2,500,000 total fixed manufacturing overhead/ 100,000

The company has enough idle capacity to accept a one-time only special order for 20,000 units of the product for $90 per unit and will not incur any additional selling expenses if it accepts the order.

Required: Show with calculations how accepting the one-time order will affect the company's operating income.