Reference no: EM131716802

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

 Direct materials $13

Direct labor 10

Variable overhead 8

Fixed overhead 11

Unit cost $42

Fixed selling costs are $1,000,000 per year. Variable selling costs of $3 per unit sold are added to cover the transportation cost. Although production capacity is 500,000 units per year, Henry expects to produce only 400,000 units next year. The product normally sells for $50 each. A customer has offered to buy 50,000 units for $38 each. The customer will pay the transportation charge on the units purchased. If Henry accepts the special order, the effect on income would be

$750,000 increase.

$350,000 increase.

$200,000 increase.

$100,000 increase.