A large Boston manufacturer has inquired about whether Lancaster would be interested in trucking a large order of its parts to Chicago. BobBob Silverman , operations manager, investigated the situation and estimated that the "fully allocated" costs of servicing the order would be $ 55,000. Using his general pricing formula, he quoted a price of $ 59,000. The manufacturer replied, "We'll give you $ 45,000

take it or leave it. If you do not want our business, we'll truck it ourselves or go elsewhere." A cost analyst had recently been conducting studies of how Lancaster 's operating costs tended to behave.

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She found that $30 million of the $60million could be characterized as variable costs.

Silverman discussed the matter with her and decided that this order would probably generate cost behavior about the same as Lancaster 's general operations.

Requirement 1.

Using a contribution-margin technique, prepare an analysis for Lancaster.

Begin by calculating the change in operating income under the fully-allocated cost approach if the order is accepted.

Now calculate the change in operating income under the contribution approach if the order is accepted.