Required information

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HighValu Inc. manufactures a moderately priced set of lawn furniture (a table and four chairs) that it sells for $285. The company currently manufactures and sells 7,200 sets per year. The manufacturing costs include $97 for direct materials and $57 for direct labor per set. The overhead charge per set is $47, which consists entirely of fixed costs.

HighValu is considering a special purchase offer from a large retail firm, which has offered to buy 720 sets per year for three years at a price of $198 per set. HighValu has the available plant capacity to produce the order and expects no other orders or profitable alternative uses of the plant capacity.

Required:

1. What is the total relevant cost per unit to produce the units requested by the retail firm?

2. What is the estimated net effect on annual operating income if HighValu accepts the special sales order?