The following information relates to a product produced by Faulkland Company:

Direct materials	$	10
Direct labor		7
Variable overhead		6
Fixed overhead		8
Unit cost	$	31

Fixed selling costs are $1,100,000 per year. Variable selling costs of $5 per unit sold are added to cover the transportation cost. Although production capacity is 600,000 units per year, Faulkland expects to produce only 500,000 units next year. The product normally sells for $40 each. A customer has offered to buy 70,000 units for $30 each. The customer will pay the transportation company directly for the transportation charges on the units purchased. If Faulkland accepts the special order, the effect on operating profits would be a:

Multiple Choice

• $70,000 increase.

• $140,000 increase.

• $490,000 increase.

• $700,000 decrease.