Sequoia Paper Products, Inc., manufactures boxed stationery for sale to specialty shops. Currently, the company is operating at 80 percent of capacity. A chain of drugstores has offered to buy 29,000 boxes of Sequoia’s blue-bordered thank-you notes as long as the box can be customized with the drugstore chain’s logo. While the normal selling price is $5.40 per box, the chain has offered just $2.90 per box. Sequoia can accommodate the special order without affecting current sales. Unit cost information for a box of thank-you notes follows: Direct materials $1.75 Direct labor 0.34 Variable overhead 0.08 Fixed overhead 1.90 Total cost per box $4.07 Fixed overhead is $444,000 per year and will not be affected by the special order. Normally, there is a commission of 5 percent of price; this will not be paid on the special order since the drugstore chain is dealing directly with the company. The special order will require additional fixed costs of $15,900 for the design and setup of the machinery to stamp the drugstore chain’s logo on each box. Required: 1. The operating income would increase by?
Sequoia Paper Products, Inc., manufactures boxed stationery for sale to specialty shops. Currently, the company is operating at 80 percent of capacity. A chain of drugstores has offered to buy 29,000 boxes of Sequoia’s blue-bordered thank-you notes as long as the box can be customized with the drugstore chain’s logo. While the normal selling price is $5.40 per box, the chain has offered just $2.90 per box. Sequoia can accommodate the special order without affecting current sales. Unit cost information for a box of thank-you notes follows:
| Direct materials | $1.75 |
| Direct labor | 0.34 |
| Variable |
0.08 |
| Fixed overhead | 1.90 |
| Total cost per box | $4.07 |
Fixed overhead is $444,000 per year and will not be affected by the special order. Normally, there is a commission of 5 percent of price; this will not be paid on the special order since the drugstore chain is dealing directly with the company. The special order will require additional fixed costs of $15,900 for the design and setup of the machinery to stamp the drugstore chain’s logo on each box.
Required:
1. The operating income would increase by?
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