1. The Dalton Company manufactures slippers and sells them at $ 12 a pair. Variable manufacturing cost is $ 5.00 a pair, and allocated fixed manufacturing cost is $ 1.25 a pair. It has enough idle capacity available to accept a one-time-only special order of 5,000 pairs of slippers at $ 6.25 a pair. Dalton will not incur any marketing costs as a result of the special order. What would the effect on operating income be if the special order could be accepted without affecting normal sales?

(a) $ 0,

(b) $ 6,250 increase,

(c) $ 28,750 increase

(d) $ 31,250 increase?

Show your calculations.

2. The Sacramento Company manufactures Part No. 498 for use in its production line. The manufacturing cost per unit for 30,000 units of Part No. 498 is as follows:

Direct materials .............$ 5

Direct manufacturing labor .......... 22

Variable manufacturing overhead ...... 8

Fixed manufacturing overhead allocated ... 15

Total manufacturing cost per unit ...... $ 50

The Counter Company has offered to sell 30,000 units of Part No. 498 to Sacramento for $ 47 per unit. Sacramento will make the decision to buy the part from Counter if there is an overall savings of at least $ 30,000 for Sacramento. If Sacramento accepts Counter’s offer, $ 8 per unit of the fixed overhead allocated would be eliminated. Furthermore, Sacramento has determined that the released facilities could be used to save relevant costs in the manufacture of Part No. 575. For Sacramento to achieve an overall savings of $ 30,000, the amount of relevant costs that would have to be saved by using the released facilities in the manufacture of Part No. 575 would be which of the following:

(a) $ 90,000,

(b) $ 150,000,

(c) $ 180,000,

(d) $ 210,000?

Show your calculations. What other factors might Sacramento consider before outsourcing to Counter?