Huang Automotive is presently operating at 75% of capacity. The company recently received an offer from a Korean truck manufacturer to purchase 30,000 units of a power steering system component for $200 per unit. Peter Wu, vice-president of sales, noted that since the truck manufacturer approached Huang, there will be no sales commission, normally 4% of sales. Although he recognizes that there will be an additional $2.50 shipping cost for each component, he thinks that accepting the order will get the company's "foot in the door" of an expanding international market. T.J. Chan, vice-president of engineering, feels that any new market should first show its profitability and that the $200 per unit offer is below the unit cost of the component. She also points out that there will be additional setup costs of $300,000 and that Huang will have to lease some special equipment for $215,000. Huang's sales, production, and cost information for the last two years for the component are as follows: 197,000 units 229,000 units Sales $49,250,000 $57,250,000 Direct material costs 16,646,500 19,350,500 Direct labor costs 3,940,000 4,580,000 Overhead costs 19,948,500 21,564,500 Selling and administrative costs 11,152,000 11,664,000 Total costs $51,687,000 $57,159,000 Total costs per unit $262.37 $249.60
1. What would the expected profit be on the special order (use a negative sign for a loss)?