FDE Manufacturing Company has a normal plant capacity of 37,500 units per month.

| February 25, 2017

Question
FDE Manufacturing Company has a normal plant capacity of 37,500 units per month. Because of an extra-large quantity of inventory on hand, it expects to produce only 30,000 units in May. Monthly fixed costs and expenses are $112,500 ($3 per unit at normal plant capacity) and variable costs and expenses are $8.25 per unit. The present selling price is $13.50 per unit. The company has an opportunity to sell 7,500 additional units at $9.90 per unit to an exporter who plans to market the product under its own brand name in a foreign market. The additional business is therefore not expected to affect the regular selling price or quantity of sales of FDE Manufacturing Company. Prepare a differential analysis report, dated April 21 of the current year, on the proposal to sell at the special price.

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