Ace produces and sells energy drinks. Its contribution margin income statement follows.
A potential customer offers to buy 50,000 units for $3.00 each. These sales would not affect the company’s sales through its normal channels. Details of the special offer follow.
∙ Direct materials cost per unit and variable overhead cost per unit would not change.
∙ Direct labor cost per unit would be $0.48 because the offer would require overtime pay.
∙ Accepting the offer would require incremental fixed general and administrative costs of $5,000.
∙ Accepting the offer would require no incremental fixed overhead costs.
Required
1. Compute income from the special offer.
2. Should the company accept or reject the special offer?
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