Whispering Winds Company is a leading manufacturer of sunglasses.
One of Whispering Winds’s products protects the eyes from ultraviolet rays. An upscale sporting goods store has contacted Whispering Winds about purchasing 29,900 pairs of these sunglasses. Whispering Winds’s unit manufacturing cost, based on a full capacity of 254,000 units, is as follows:
Direct materials $7
Direct labor 5
Manufacturing overhead (75% fixed) 19
Total manufacturing costs $31
Whispering Winds also incurs selling and administrative expenses of $75,400 plus $3 per pair for sales commissions. The company has plenty of excess manufacturing capacity to use in manufacturing the sunglasses. Whispering Winds’s normal price for these sunglasses is $42 per pair. The sporting goods store has offered to pay $36 per pair. Since the special order was initiated by the sporting goods store, no sales commission will be paid. What would be the effect on Whispering Winds’s income if the special order were accepted?
Sample Solution
