The Melrose Corporation produces a single product, Product C. Melrose has the capacity to produce 70,000 units of Product C each year. If Melrose produces at capacity, the per unit costs to produce and sell one unit of Product C are as follows:
Direct materials .........................$20
Direct labor...............................$17
Variable selling expense................$13
Fixed manufacturing overhead.........$14
Variable selling expense.................$12
Fixed selling expense......................$8
The regular selling price of one unit of Product C is $100. A special order has been received by Melrose from Moore Corporation to purchase 7,000 units of Product C during the upcoming year. If this special order is accepted, the variable selling expense will be reduced by 75%. Total fixed manufacturing overhead and fixed selling expenses would be unaffected except that Melrose will need to purchase a specialized machine to engrave the Moore name on each unit of product C in the special order. The machine will cost $10,500 and will have no use after the special order is filled. Assume that direct labor is a variable cost. 45. Suppose Melrose can sell 68,000 units of Product C to regular customers next year. If Moore Corporation offers to buy the special order units at $90 per unit, the effect of accepting the special order for 7,000 units on Melrose's net operating income for next year will be a:
A. $79,500 increase
B. $104,000 increase
C. $114,500 increase
D. $294,000 increase
E. $58,500 increase