Smooth Brew manufactures cappuccino makers. For the first eight months of 2006, the company reported the following operating results while operating at 80% of plant capacity:
Sales (120,000) $6,000,000
Cost of Goods Sold 3,600,000
Gross profit 2,400,000
Operating Expenses 1,800,000
Net income $ 600,000
An analysis of costs and expenses reveals that the variable cost of goods sold is $25 per unit and variable operating expenses are $10 per unit.
In September, Smooth Brew received a special order for 5,000 machines at $40 each from a major coffee shop franchise. Acceptance of the order would result in $2,000 of shipping costs but no increase in fixed expenses.
1. Prepare an incremental analysis for the special order.
2. Should Smooth Brew accept the special order? Justify your answer.
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