1.Our company manufactures and sells calculators for $80 each. A major University has offered us $55 per calculator for a one-time order of 500 calculators.

Our costs to manufacture a calculator include:

• direct materials, $25 per unit;
• direct labor, $20 per unit;
• variable factory overhead, $15 per unit; and
• fixed manufacturing overhead, $12 per unit.

Assume that we have excess capacity and the special order will not affect regular sales.

What is the change in operating income that would result from accepting this special sales order?

a. increase of $8500

b. decrease of $8500

c. increase of $2500

d. decrease of $2500

Should we accept the special order?

a. accept the order

b. reject the order