A fire recently destroyed a substantial portion of Culver Companys production capacity. It will be many months before capacity can be restored. During this period, demand for the firms products will exceed the companys ability to produce them. Per-unit data on the firms three major products is summarized as follows:

Product		A		B		C
Selling price		$74		$90		$63
Variable costs		32		25		19
Fixed costs		15		19		9
Operating profit		$27		$46		$35

Fixed costs have been allocated to the products on the basis of the labour hours required to produce each product. The major capacity constraint is the availability of time on a processing machine. Each unit of Product A and Product C requires 2 hours of processing on the machine, whereas Product B requires 3 hours.

a) Assume that the firm has enough capacity to meet the demand of the two products you identified in previous part. If estimated demand for the next product to be produced exceeds capacity by 950 units, what is the maximum amount the firm would be willing to pay to increase capacity?

b) Management adopted your plan from first part. Shortly thereafter, a strategically important customer requested that the firm supply 500 units of Product D, which has been discontinued but could be produced again if needed. Management wants to meet the customers request to maintain goodwill but wants to know the cost before making the decision. In the past, Product D sold for $43, incurred $22 in variable costs, was allocated $4 of fixed costs, and required 1.5 hours of processing on the machine. What is the opportunity cost of accepting the order?