Rexeleg Company manufactures a product with the following costs per unit at the expected production of 40,000 units:
Direct materials $5
Direct labor 10
Variable overhead 7
Fixed overhead 9
The company has the capacity to produce 50,000 units. The product regularly sells for $50. A wholesaler has offered to pay $43 per unit for 3,000 units.
If the firm chooses to accept the special order and reject some regular sales, the effect on operating income would be a:
a.$30,000 increase.
b.$45,000 decrease.
c.$64,000 increase.
d.$21,000 decrease.
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