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Cat Company produces a single product. The cost of producing and selling a single unit...

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Accounting

Cat Company produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 40,000 units per month is as follows: Direct Materials $45.80 Direct Labour $14.60 Variable Manufacturing Overhead $7.50 Fixed Manufacturing Overhead $18.20 Variable Selling & Administrative Expense $8.95 Fixed Selling & Administrative Expense $13.00 The normal selling price of the product is $83.20 per unit. An order has been received from an overseas customer for 5,000 units to be delivered this month at a special discounted price. This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $2.30 less per unit on this order than on normal sales.

QUESTION 1 Suppose there is ample idle capacity to produce the units required by the overseas customer, and the special discounted price on the special order is $73.50 per unit. Should Cat Company accept the special order? By how much would this special order increase (decrease) the company's operating income for the month? (Show all calculations)

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