Aerotoy Company makes toy airplanes. One plane is an excellent replica of a 737; it sells for 5$. Vacation Airlines wants to purchase 12,000 planes at $1.75 each to give to children flying unaccompanied. Cost per planes are as follows:
Direct materials $1.00
Direct Labor 0.50
Variable Overhead 0.10
Fixed Overhead 0.90
No variable marketing costs would be incurred. The company is operating significantly below the maximum productive capacity. No fixed costs are avoidable. However, Vacation airlines wants its own logo and colors on the planes. The cost of decals is $0.01 per plane and a special machine costing $1,500 would be required to affix the decals. After the order is complete the machine would be scrapped.
Should the special order be accepted and how much would income change.