(Answered) Question - the following information relates to a product

Accounting

Question - The following information relates to a product produced by Bayfield Company:

Direct materials	$50
Direct labor	35
Variable overhead	30
Fixed overhead	40
Unit cost	$155

Fixed selling costs are $1,000,000 per year. Although production capacity is 900,000 units per year, Bayfield expects to produce only 800,000 units next year. The product normally sells for $180 each. A customer has offered to buy 60,000 units for $150 each. The customer will pay the transportation charge on the units purchased.

Requirements:

Compute the effect on income if Bayfield accepts the special order.

If Bayfield accepts the special order, how much could normal sales drop before all of the differential profits disappear?

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