Question - Goldwin Company makes lawn and garden equipment. Lawns R Us offered a special order for 20,000 weed eaters for $15 each. Normally, Goldwin sells the weed eaters for $20 each. In addition, Lawns R Us wants their own logo on the weed eaters. Cost information is as follows:
Direct materials $8.00
Direct labor $3.00
Variable manufacturing overhead $2.00
Fixed manufacturing overhead $3.50
To affix the Lawns R Us logo, Goldwin will have to lease a special machine for three months (the time limit it will take to make the order) at a cost of $2,000 per month. The fixed cost is unavoidable whether the company accept or reject the special order.
If Goldwin accepts the special order at the discounted price, what will be the impact on operating income?