Question 2 6 marks, 11 minutes

Jedi Enterprises makes small toys for the North American market. A customer from Europe has approached Jedi with an offer to purchase 10,000 units of their Millennium Falcon toy at a price of $7 each. Each year, they can make 75,000 units of their Millennium Falcon toy but theyre planning on only making 60,000 units this year. The normal sales price is $12 per unit.

Unit cost information for the Millennium Falcon is as follows:

Direct materials	$1.50
Direct labour	2.00
Variable factory overhead	1.00
Fixed factory overhead	3.25
Fixed selling & admin.	0.25
Total	$8.00

The European company would like their logo affixed to each toy using a label. Each label will cost Jedi Enterprises $0.50 each. The extra cost to ship the Millennium Falcon to Europe is $0.75 per toy. Total fixed costs will not change if they accept this special order.

How much will operating income increase or decrease if the special order is accepted?