Sequoia Paper Products, Inc., manufactures boxed stationery for sale to specialty shops. Currently, the company is operating at 90 percent of capacity. A chain of drugstores has offered to buy 28,000 boxes of Sequoias blue-bordered thank-you notes as long as the box can be customized with the drugstore chains logo. While the normal selling price is $5.40 per box, the chain has offered just $2.90 per box. Sequoia can accommodate the special order without affecting current sales. Unit cost information for a box of thank-you notes follows:

Direct materials $1.80

Direct labor 0.33

Variable overhead 0.07

Fixed overhead 2.20

Total cost per box $4.40

Fixed overhead is $390,000 per year and will not be affected by the special order. Normally, there is a commission of 10 percent of price; this will not be paid on the special order since the drugstore chain is dealing directly with the company. The special order will require additional fixed costs of $13,900 for the design and setup of the machinery to stamp the drugstore chains logo on each box.

Required:

1. Which alternative is more cost effective and by how much?