Question - Lybrand Company is a leading manufacturer of sunglasses. One of Lybrand's products protects the eyes from ultraviolet rays.
An upscale sporting goods store has contacted Lybrand about purchasing 15,700 pairs of these sunglasses. Lybrand's unit manufacturing cost, based on a full capacity of 113,000 units, is as follows:
Direct materials $6
Direct labor 5
Manufacturing overhead (60% fixed) 15
Total manufacturing costs $26
Lybrand also incurs selling and administrative expenses of $76,220 plus $2 per pair for sales commissions. The company has plenty of excess manufacturing capacity to use in manufacturing the sunglasses. Lybrand's normal price for these sunglasses is $40 per pair. The sporting goods store has offered to pay $38 per pair. Since the special order was initiated by the sporting goods store, no sales commission will be paid.
What would be the effect on Lybrand's income if the special order were accepted?