Tobitzu TV produces wall mounts for flat panel television sets. The forecasted income statement for 2009 is as follows:
Budgeted Income Statement
For the Year 2009
Sales ($43 per unit) $4,300,000
Cost of good sold ($32 per unit) (3,200,000)
Gross profit 1,100,000
Selling expenses ($2 per unit) (200,000)
Net income $900,000
(1) Of the production costs and selling expenses, $600,000 and $100,000, respectively, are fixed. (2) Tobitzu TV received a special order from a hospital supply company offering to buy 15,500 wall mounts for $28. If it accepts the order, there will be no additional selling expenses, and there is currently sufficient excess capacity to fill the order. The company’s sales manager argues for rejecting the order because “we are not in the business of paying $32 to make a product to sell for $28.”
Calculate the net benefit (cost) of accepting the special order.
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