Gund Manufacturing produces Teddy Bears and sells them for $6.50 each. A foreign retailer has offered to purchase 25,000 Teddy Bears for $4.00 per Teddy. The current average manufacturing cost per Teddy is $4.50, $2.50 of variable cost and $2.00 of fixed cost. Gund has capacity to make 15,000 more bears. If they accept the special order, they will lose out on 10,000 normal sales, but it won't hurt their brand or reputation. No variable non-manufacturing costs would be incurred by the special order.
Should Gund Manufacturing accept the order?
What is the impact on income if Gund accepts the order?
This is a problem from a graded exam that we are allowed to seek outside help on.