Ries Corporation has got the request for special order of 8,000 units of product R34 for $34.20 each. Normal selling price of the product is $35.70 each, but units would require to be modified slightly for customer. Normal unit product cost of product R34 is evaluated as follows:
Direct materials $11.60
Direct labor 2.20
Variable manufacturing overhead 7.10
Fixed manufacturing overhead 2.90
Unit product cost $23.80
Direct labor is variable cost. Special order would have no effect on company's total fixed manufacturing overhead costs. Customer would like few alterations made to product R34 which would increase variable costs by 6.30 per unit and which would need theone-time investment of $40,000 in special molds which would have no salvage value. The special order would have no effect on company's other sales. Company has ample spare capacity for producing special order. Find effect on company's total net operating income of accepting special order. Illustrate the work.