Orr Products manufactures t-shirts. It has the following costs when its production level is 100,000 units (t-shirts):

__________________________________Total costs for 100,000 units

Direct materials ……………………………………………. $ 320,000

Direct labor ……………………………………………………… 40,000

Variable manufacturing overhead ………………………. 85,000

Fixed manufacturing overhead ………………………… 120,000

Total manufacturing costs …………………………….. $ 565,000

The company’s relevant range extends to 115,000 units. Orr has received a special order for 10,000 t-shirts at a special price of $50,000 for the entire order. The special order t-shirt would use a fabric that is less expensive than the standard fabric used by Orr, which would allow Orr to save $0.50 per t-shirt in direct materials when manufacturing this special order. Orr has the excess capacity to manufacture this special order. Its total fixed costs will not be impacted by the special order. What will happen to Orr’s operating income if it accepts this special order?



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