Structuring a Special-Order Problem

Rabbit Foot Motors has been approached by a new customer with an offer to purchase 5,000 units of its hands-free, Wi-Fi-enabled automotive modelthe SMAKat a price of $18,000 per automobile. Rabbit Foots other sales would not be affected by this new customer offer. Rabbit Foot normally produces 100,000 units of its SMAK model per year but only plans to produce and sell 90,000 in the coming year. The normal sales price is $35,000 per SMAK. Unit cost information for the normal level of activity is as follows:

Direct materials	$10,000
Direct labor	2,000
Variable overhead	4,000
Fixed overhead	8,000
Total	$24,000

Fixed overhead will not be affected by whether or not the special order is accepted.

Required:

1. What are the relevant costs and benefits of the two alternatives (accept or reject the special order)?

2. By how much will operating income increase or decrease if the order is accepted?

by $fill in the blank 3