Scenario 2: Special Order Analysis-Accept or Reject Costa Company produces and sells a single product with a variable cost of $8 per unit. Annual capacity is 10,000 units, and annual fixed costs total $48,000. The selling price is $20 per unit and production and sales are budgeted at 5,000 units. Budgeted income before income taxes is $12,000. The Income Statement is: evenue (5,000 units at $20 Variable cost Direct materials cost $4 per un Labor $1 per un Income statement For the period ending May 31 $20,000 5,000 Overhead ($2 per unit 10.000 Marketing and administrative costs 1 per un 1,000 $40,000 Total variable costs ($8 per Fixed costs Overhead Marketing and administrative costs Total fixed costs Total costs ($1760 per unit Net income $100,000 $28,000 20,000 48,000 1,000 $12.000 Costa receives an order from a distributor for 3,000 units at $10 per unit. This $10 price is not only half of the regular selling price per unit, but also less than the $17.60 average cost per unit ($88,000/5,000 units). However, the $10 price offered exceeds the variable cost per unit by $2. If the company accepts the order, net income increases to $18,000. Revenue would increase to $130,000 with the special order. Each of the variable costs increases in total by 60% because total volume increases by 60% (3,000 units in the special order/5,000 units regularly produced). The revised income statement would appear as follows: