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The Melrose Corporation produces a single product, Product C. Melrose has the capacity to produce 70,000 units of Product C each year. If Melrose produces at capacity, the per unit costs to produce and sell one unit of Product C are as follows:

The regular selling price of one unit of Product C is $100. A special order has been received by Melrose from Moore Corporation to purchase 7,000 units of Product C during the upcoming year. If this special order is accepted, the variable selling expense will be reduced by 75%. Total fixed manufacturing overhead and fixed selling expenses would be unaffected except that Melrose will need to purchase a specialized machine to engrave the Moore name on each unit of product C in the special order. The machine will cost $10,500 and will have no use after the special order is filled. Assume that direct labor is a variable cost. 45. Suppose Melrose can sell 68,000 units of Product C to regular customers next year. If Moore Corporation offers to buy the special order units at $90 per unit, the effect of accepting the special order for 7,000 units on Melrose's net operating income for next year will be a:

A. $79,500 increase B. $104,000 increase C. $114,500 increase D. $294,000 increase E. $58,500 increase

According to the answer key I have, the answer is supposed to be E. But I keep getting A.

Direct materials Direct labor. Variable manufacturing overhead. Fixed manufacturing overhead Variable selling expense. Fixed selling expense $20 $17 $13 $14 $12 $8

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