The modifications requested by the Seattle Police Department consist of welded brackets to hold radios, nightsticks, and other gear. These modifications would require $34 in incremental variable costs. In addition, the company would have to pay a graphics design studio $2400 to design and cut stencils that would be used for spray painting the Seattle Police Department's logo and other identifying marks on the bikes.
This order should have no effect on the company's other sales. The production manager says that she can handle the special order without disrupting any of the company's regular scheduled production.
What effect would accepting this order have no the company's net operating income?
Only the incremental costs and benefits are relevant. Because the existing fixed manufacturing overhead costs would not be affected by the order, they are not relevant. The incremental net operating income can be computed as follows