Question - The following information relates to a product produced by Cornish Company:
Direct materials $50
Direct labor 35
Variable overhead 30
Fixed overhead 40
Unit cost $155
Fixed selling costs are $1,000,000 per year. Although production capacity is 900,000 units per year, Cornish expects to produce only 800,000 units next year. The product normally sells for $180 each. A customer has offered to buy 60,000 units for $150 each. The customer will pay the transportation charge on the units purchased.
Requirements
Compute the effect on income if Cornish accepts the special order.
If Cornish accepts the special order, how much could normal sales drop before all of the differential profits disappear?