ABC Company produces a single product called a Pong. ABC Com…
ABC Company produces a single product called a Pong. ABC Company has the capacity to produce 60,000 Pongs each year. If ABC Company produces at capacity, the per unit costs to produce and sell one Pong are as follows: Direct materials $15 Direct labor $12 Variable manufacturing overhead $8 Fixed manufacturing overhead $9 Variable selling expense $8 Fixed selling expense $3 The regular selling price for one Pong is $80. A special order has been received by ABC Company from XYZ Company to purchase 6,000 Pongs next year. If this special order is accepted, the variable selling expense will be reduced by 75%. However, ABC Company will have to purchase a specialized machine to engrave the XYZ Company name on each Pong in the special order. This machine will cost $9,000 and it will have no use after the special order is filled. The total fixed manufacturing overhead and selling expenses would be unaffected by this special order. Assume ABC Company anticipates selling only 50,000 units of Pong to regular customers next year. If XYZ Company offers to buy the special order units at $65 per unit, the annual financial advantage (disadvantage) for the company as a result of accepting this special order should be (PLEASE SHOW YOUR WORK BY USING THE HONORLOCK ON-SCREEN CALCULATOR):