The Transnational Trucking Company has the following operating results to date for 20X1:

Operating revenues … $50,000,000

Operating costs ……… 40,000,000

Operating income ….. $10,000,000

A large Boston manufacturer has inquired about whether Transnational would be interested in trucking a large order of its parts to Chicago. Steve Goldmark, operations manager, investigated the situation and estimated that the “fully allocated” costs of servicing the order would be $45,000. Using his general pricing formula, he quoted a price of $50,000. The manufacturer replied, “We’ll give you $39,000, take it or leave it. If you do not want our business, we’ll truck it ourselves or go elsewhere.”

A cost analyst had recently been conducting studies of how Transnational’s operating costs tended to behave. She found that $30 million of the $40 million could be characterized as variable costs. Goldmark discussed the matter with her and decided that this order would probably generate cost behavior about the same as Transnational’s general operations.

1. Using a contribution-margin technique, prepare an analysis for Transnational.

2. Should Transnational accept the order? Explain.