Ries Corporation has received a request for a special order of 8,000 units of product R34 for $34.60 each. The normal selling price of this product is $36.60 each, but the units would need to be modified slightly for the customer. The normal unit product cost of product R34 is computed as follows:
- Direct materials $10.80
- Direct labor 2.00
- Variable manufacturing overhead 6.80
- Fixed manufacturing overhead 2.70
- Unit product cost $22.30
Direct labor is a variable cost. The special order would have no effect on the company's total fixed manufacturing overhead costs. The customer would like some modifications made to product R34 that would increase the variable costs by $5.80 per unit and that would require a one-time investment of $39,000 in special molds that would have no salvage value. This special order would have no effect on the company's other sales. The company has ample spare capacity for producing the special order.
Required:
Determine the effect on the company's total net operating income of accepting the special order.