Reference no: EM133025509

Question - U Balance Corporation manufactures balance bikes for toddlers. The company currently sells the bikes for $60.00. A customer has approached the company and would like to make a special order for 1,000 bikes. Due to the large order, the client would like a discount and offered to pay $45.00 per bike. U Balance is trying to determine if they should accept the special order. U Balance currently sells 20,000 bikes per year and has the ability to produce 25,000 bikes. U Balance has provided information on its normal costs to produce the bikes as follows:

Per Unit

Direct Materials $15

Direct Labour $10

Manufacturing Overhead $8

Unit product cost $33

The variable portion of the manufacturing overhead is $5 per unit. The order would have no effect on the company's total fixed manufacturing overhead costs and would not affect regular sales.

Required -

a. Calculate the incremental operating income if the company accepts the special order.

b. Should the company accept the special order?