Windham Industries has an annual plant capacity of 80,000 units; current production is 65,000 units per year. At the current production volume, the variable cost per unit is $40.00, and the fixed cost per unit is $4.50. The normal selling price of Windham’s product is $60.00 per unit. Windham has been asked by Ramone Company to fill a special order for 8,000 units of the product at a special sales price of $38.00 per unit. Ramone is located in a foreign country where Windham does not currently operate. Ramone will market the units in its country under its own brand name, so the special order is not expected to have any effect on Windham’s regular sales.
1. How would accepting the special order impact Windham’s operating income? Should Windham accept the special order?
2. How would your analysis change if the special order sales price were to be $50.00 per unit and Windham would have to pay an attorney a fee of $35,000 to make sure it is complying with export laws and regulations relating to the special order?