11-44    Special Order Duvernoy Industries produces high-quality automobile seat covers. Its success in the industry is due to its quality, although all of its customers, the automakers, are very cost conscious and negotiate for price cuts on all large orders. Noting that the auto supply business is becoming increas- ingly competitive, Duvernoy is looking for a way to meet the challenge. It is negotiating with Chen, Inc., a large mail-order auto parts and accessories retailer, to purchase a large order of seat covers. Much of Duvernoy’s business is seasonal and cyclical, fluctuating with the varying demands of the large automakers. Duvernoy would like to keep its plants busy throughout the year by reducing these seasonal and cyclical fluctuations. Keeping the flow of product moving through the plants at a steady level is helpful in keeping costs down; extra overtime and machine setup and repair costs are incurred when production levels fluctuate. Chen has agreed to a large order but only at a price of $30 per set. The special order can be produced in one batch with available capacity. Duvernoy prepared these data:

 

Next month’s operating information without the special order (per unit, for 10,000 units, made in 10 batches of 1,000 each)

 

Sales price	$80
Per unit costs	Â
Variable manufacturing costs	20
Variable marketing costs	8
Fixed manufacturing costs	40
Fixed marketing costs	3

Special order information

Sales                                                               2,000 units

Sales price per unit                                              $30

 

No variable marketing costs are associated with this order, but Marc Jones, the firm’s president, has spent $6,000 during the past three months trying to get Chen to purchase the special order.

Required

1.    How much will the special order change Duvernoy Industries’ total operating income?

2.    How might the special order fit into Duvernoy’s competitive situation?