Reference no: EM13608655

Huang Automotive is presently operating at 75% of capacity. The company recently received an offer from a Korean truck manufacturer to purchase 30,000 units of a power steering system component for $200 per unit. Peter Wu, vice-president of sales, noted that since the truck manufacturer approached Huang, there will be no sales commission, normally 2% of sales. Although he recognizes that there will be an additional $3.00 shipping cost for each component, he thinks that accepting the order will get the company's "foot in the door" of an expanding international market. T.J. Chan, vice-president of engineering, feels that any new market should first show its profitability and that the $200 per unit offer is below the unit cost of the component. She also points out that there will be additional setup costs of $235,000 and that Huang will have to lease some special equipment for $300,000. At the beginning of the year, Huang's accountants expected one of two possible production levels and prepared the following budgets for each: 193,000 units 240,000 units Sales $52,110,000 $64,800,000 Direct material costs 15,826,000 19,680,000 Direct labor costs 5,693,500 7,080,000 Overhead costs 22,536,000 24,980,000 Selling and administrative costs 8,805,500 9,440,000 Total costs $52,861,000 $61,180,000 Total costs per unit $273.89 $254.92

Required 1. What would the expected profit be on the special order (use a negative sign for a loss)?