Ridgewood produces a hard disk drive that sells for $175 per unit. The cost of producing 25,000 drives in the prior year was:

Direct material

$

700,000

Direct labor

475,000

Variable overhead

225,000

Fixed overhead

1,475,000

Total cost

$

2,875,000

At the start of the current year, the company received an order for 3,200 drives from a computer company in China. Management of Ridgewood has mixed feelings about the order. On one hand, they welcome the order because they currently have excess capacity. Also, this is the company's first international order. On the other hand, the company in China is willing to pay only $118 per unit.