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What will be the effect on profit of accepting the order

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Problem - Analyzing a Special Order

PowerDrive produces a hard disk drive that sells for $175 per unit. The cost of producing 25,000 drives in the prior year was:

Direct material 725,000

Direct labor 475,000

Variable overhead 225,000

Fixed overhead 1,500,000

Total cost $2,925,000

At the start of the current year, the company received an order for 3,000 drives from a computer company in China. Management of PowerDrive has mixed feelings about the order. On one hand, they welcome the order because they currently have excess capacity. Also, this is the company's first international order. On the other hand, the company in China is willing to pay only $125 per unit.

Required - What will be the effect on profit of accepting the order?

Reference no: EM132474011

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