Sparrow Corporation provided the following information regarding its one and only product -tables: $\begin{array}{ll}
\text { Selling price per unit } & \$ 50 \
\text { Direct materials used } & 150,000 \
\text { Direct labor } & 225,000 \
\text { Variable factory overhead } & 140,000 \
\text { Variable s elling and administrative } & 60,000\\text { expenses }\
\text { Fixed factory overhead } & 330,000 \
\text { Fixed selling and adminis trative expenses } & 70,000 \
\text { Units produced and sold } & 20,000
\end{array}$ Assuming there is excess capacity, the effect of accepting a special order for 1,000 units at a price of
$40)00 per table is that:

Question

Quizplus · Accepted Answer

The special order will contribute $11,250 to net income. The special order will generate $40,000 in revenue. The variable costs associated with the special order are $20,000 ($10 per unit x 1,000 units). The fixed costs will not change, so they are irrelevant to the decision. Therefore, the net income will increase by $11,250 ($40,000 - $20,000 - $70,000).

Sparrow Corporation Provided the Following Information Regarding Its One and Only