Short-term pricing True Image Printers, Inc. is a corporation based in Oberlin, Ohio, that sells high-quality printers in the Midwest regional market. It manufactures two products, L8011 and L8033, for which the following information is available:

The average wage rate including fringe benefits is $20 per hour. The plant has a capacity of 14,000 direct labor hours, but current production uses only 13,000 direct labor hours of capacity.
REQUIRED

(a) A new customer has offered to buy 40 units of L8033 if its price is lowered to $2000 per unit. How many direct labor hours will be required to pro¬ duce 40 units of L8033? How much will True Image Printers's profit in¬ crease or decrease if it accepts this proposal? All other prices will remain as before.

(b) Suppose the customer has offered, instead, to buy 60 units of L8033 at $2000 per unit. How much will the profits increase or decrease if True Image Printers accepts this proposal? Assume that the company cannot in¬ crease its production capacity to meet the extra demand.

(c) Answer the question in

(b) above, assuming, instead, that the plant can work overtime. Direct labor costs for the overtime production increase to $30 per hour. Variable support costs for overtime production are 50% more than for normal production.(LO 2, 3)

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TRUE IMAGE PRINTERS, INC. COST INFORMATION ON TWO PRINTERS Item PRODUCT L8011 L8033 Cost per unit: Direct materials $ 300 $ 375 Direct labor 400 500 Variable support Fixed support Total cost per unit 500 625 400 500 $1600 $2000 Price Units sold $2000 $2500 400 units 200 units