Reference no: EM132565297

Quality Fencing produces 18-gauge barbed wire that is retailed through farm supply companies. Presently, the company has the capacity to produce 42,000 tons of wire per year. The firm is operating at 85 percent of annual capacity, and at this level of operations the cost per ton of wire is as follows: Direct material $320 Direct labor 80 Variable overhead 50 Fixed overhead 160 Total $610 The average sales price for the output produced by the firm is $800 per ton. The firm has been approached by an Australian company about supplying 400 tons of wire for a new game preserve. The company has offered Quality Fencing $480 per ton for the order (FOB Quality Fencing's plant). No production modifications would be necessary to fulfill the order from the Australian company.

Question a. What costs are relevant to the decision to accept this special order

Question b. What would be the dollar effect on pretax income if this order were accepted