Strutt Company, which manufactures robes, has enough idle capacity available to accept a special order of 10,000 robes at $8 a robe. A predicted income statement for the year without this special order is:
Per Unit
Total
Sales revenue
$12.50
$1,250,000
Manufacturing costs:
Variable
6.25
625,000
Fixed
1.75
175,000
8
800,000
Gross profit
4.5
450,000
Marketing costs:
Variable
1.8
180,000
Fixed
1.45
145,000
3.25
325,000
Operating profit
$1.25
$125,000
If the order is accepted, variable marketing costs on the special order would be reduced by 25% because all of the robes would be packed and shipped in one lot. However, if the offer is accepted, management estimates it will lose sales of 2,000 robes at regular prices.
Required:
What is the net gain or loss from the special order?