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Question - Ratzlaff Company has a current production capacity of 20,000 units per month. Unit costs at this level are:
Direct materials $0.25
Direct labor 0.40
Variable overhead 0.15
Fixed overhead 0.20
Marketing - fixed 0.30
Marketing/distribution - variable 0.40
Current monthly sales are 18,000 units at $2.20. Jim Company has contacted Ratzlaff Company about purchasing 1,500 units at $1.60 each. Current sales would not be affected by the one-time-only special order, and variable marketing/distribution costs would not be incurred on the special order.
Required - Should Ratzlaff accept the order? Prepare your answer in good form:
a. What is Ratzla?' Company's current total monthly income before the special order?
b. What is Ratzlaff Company's change in operating pro?ts if the special order is accepted?
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