Reference no: EM133058471

Question- One of the products (Product 17L) manufactured by Weslong Corp. (Weslong) has the following cost per unit:

Direct materials $12

Direct labour (1 hour) 25

Overhead (1 hour) 40

Total $77

Fixed overhead allocated to Product 17L is $250,000 per year and is based on Weslong's estimated production capacity of 10,000 hours. Current production and sales of Product 17 Lare 8,000 units per year. The current price for Product 17L is $130 per unit.

Weslong was approached by a potential customer who wants to place a special order for 4,000 units of a product that would be very similar to Product 17L. The special order would be produced in the same facility as Product 17L. The only difference is that the special-order product would require only 0.75 direct labour hours per unit. The potential customer has offered a price of $80 per unit. If the special order is accepted, Weslong would incur a one-time setup cost of $18,000.

Required -

a) Calculate the incremental income to Weslong if the special order is accepted.

b) Recommend whether Weslong should accept the special order, and explain why or why not.