Reference no: EM131784409

A manufacturer operating with no excess capacity sells a unit of product at a regular price of $10. Management received an offer from a foreign wholesaler to purchase 10,000 units at $7.25 per unit. Accepting the offer would not affect normal sales of the product. The manufacturer's usual variable costs per unit are $3.50 for direct materials, $2.00 for direct labour, $1.00 for variable overhead, and $0.50 for sales commission. No sales commission would be paid on this special order. The average fixed overhead cost per unit is $0.25.

How much is the relevant income effect of accepting the special order?

$5,000 increase

$2,000 decrease

$10,000 increase

$12,500 decrease