Question
Your Company produces a single product. It has the capacity to produce 70,000 units each year. It can sell only 60,000 units to regular customers.
Your Company produces a single product. It has the capacity to produce 70,000 units each year. It can sell only 60,000 units to regular customers. At capacity the per unit costs to produce and sell one unit are as follows:
Direct materials $ 30
Direct labor 25
Variable factory overhead 18
Fixed factory overhead 27
Variable selling expense 16
Fixed selling expense 20
Total cost per unit $136
The regular selling price of one unit is $210. A special order has been received from Moore Company to purchase 2,500 units for $185 per unit. These units will be shipped to a foreign market that Your Company does not want to develop. If this special order is accepted, the variable selling expense relating to that order only will be reduced by 90% since commissions can be eliminated. In addition, the company will need to spend $5,000 for a permit to export to the destination country. It does not expect to use the permit again. What is the effect of accepting the special order on net income?
$ 239,000
$ 223,500
$ 244,000
$ 276,000
$ 271,000
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