1. JJ Corporation manufactures recreational equipment. Freed Corporation has approached JJ with a special order for 30,000 soft balls. Instead of being packaged separately, the balls are to be bulk packed in boxes containing 500 balls each. Freed is willing to pay $2.45 per ball. JJ's Accounting Department knows that annual expected production is 400,000 balls. It also knows that the current year's production is 410,000 balls and that the maximum production capacity is 450,000 balls. The following additional information is available.

Standard unit cost data for 400,000 balls:

Direct materials $ .90

Direct labor .60

Manufacturing overhead Variable .50

Fixed ($100,000/400,000) .25

Packaging per unit .30

Advertising ($60,000/400,000) .15

Other fixed selling and

administrative expenses

($120,000/400,000) .30

Product unit cost $3.00

Unit selling price $4.00

Total estimated bulk packaging costs for special order (30,000 balls, 500 per box)

$2,500

1. Determine the incremental (relevant) costs and revenues of the decision to accept or not accept the special order, and create an incremental analysis proving the result.
2. Assuming JJ does accept the order, how much will operating income increase (decrease)?
3. Assuming JJ wants a $3,000 profit, what is the minimum price it should accept for each ball (round to nearest cent)?