1. The Fresno Company manufactures slippers and sells them at $13 a pair. Variable manufacturing cost is $6.50 a pair, and allocated fixed manufacturing cost is $2.00 a pair. It has enough idle capacity available to accept a one-time-only special order of 5,000 pairs of slippers at $8.50 a pair. Fresno 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) $10,000 increase, $32,500 increase, or (d) $42,500 increase? Show your calculations.

2. The Portland Company manufactures Part No. 498 for use in its production line. The manufacturing cost per unit for 20,000 units of Part No. 498 is as follows:

Direct materials	$4
Variable direct manufacturing labor	22
Variable manufacturing overhead	17
Fixed manufacturing overhead allocated	20
Total manufacturing cost per unit	$63

The Counter Company has offered to sell 20,000 units of Part No. 498 to Portland for $58 per unit. Portland will make the decision to buy the part from Counter if there is an overall savings of at least $20,000 for Portland. If Portland accepts Counter's offer, $5 per unit of the fixed overhead allocated would be eliminated. Furthermore, Portland has determined that the released facilities could be used to save relevant costs in the manufacture of Part No. 575.

For Portland to achieve an overall savings of $20,000, 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) $100,000, (b) $220,000, $20,000 or (d) $300,000? Show your calculations. What other factors might Portland consider before outsourcing to Counter?