PowerDrive, Inc. produces a hard disk drive that sells for $175per unit. The cost of producing 25,000 drives in the prior yearwas:
Direct material $625,000
Direct labor 375,000
Variable overhead 125,000
Fixed overhead 1,500,000
Total cost $2,625,000
At the start of the current year, the company received an orderfor 3,800 drives from a computer company in China. Management ofPowerDrive has mixed feelings about the order. On the one hand theywelcome the order because they currently have excess capacity.Also, this is the company’s first international order. On the otherhand, the company in China is willing to pay only $135 perunit.
What will be the effect on profit of accepting the order?
