Problem

Special Order Carson Manufacturing, Inc., sells a single product for $36 per unit. At an operating level of 8,000 units, variable costs are $18 per unit and fixed costs $10 per unit. Carson has been offered a price of $20 per unit on a special order of 2,000 units by Big Mart Discount Stores, which would use its own brand name on the item. If Carson accepts the order, material cost will be $3 less per unit than for regular production. However, special stamping equipment costing $4,000 would be needed to process the order; the equipment would then be discarded. Assuming that volume remains within the relevant range, prepare an analysis of differential revenue and costs to determine whether Carson should accept the special order.