Reference no: EM132270548

Question - Midwest Company manufactures lamps. Shop Smart, a large retail merchandiser, wants to buy 200,000 lamps from Midwest Company for $12 each. The lamp would carry Shop Smart's name and would be sold in its stores.

Midwest Company normally sells 420,000 lamps a year at $16 each; its production capacity is a total of 450,000 units a year. Cost information for the lamps is as follows:

Production costs:

Variable production costs $6 per unit

Fixed manufacturing overhead ($2,100,000 / 420,000 units) $5 per unit

Selling and administrative expenses:

Fixed ($840,000 / 420,000 units) $2 per unit

Shop Smart has indicated that the company is not interested in signing a contract for less than 200,000 lamps. Total fixed costs will not change regardless of whether the Shop Smart order is accepted.

By how much will overall Midwest Company's net income change if the Shop Smart order is accepted?