Axia Inc. manufactures two electronic products, widgets and gadgets, and has a capacity of 1,000 machine hours. Prices for each product are as follows:

Widget Gadget

Selling price $200 $280

Variable costs

Direct materials $25 $30

Direct labour costs $6 $10

Applied overhead manufacturing costs $30 $44

Fixed overhead $50 $70

Variable overhead manufacturing costs are applied at a rate of $40 per machine hour.

Bromont Inc., a potential client, has offered $240 per unit to Axia for a special order of 250 units. These 250 units would incur the following production costs and time:

Direct materials $7,000

Direct labour costs $2,000

Machine hours 200

a) Assume that Axia has enough excess capacity to produce the special order. Calculate the total contribution margin if the special order from Bromont was accepted.

b) Assume that Axia is actually operating at 95% of capacity. Determine, whether Axia should produce the units for the special order instead of widget or gadget units. Show your calculations.

c) Assume that Axia is actually operating at 95% capacity, and additional machines can be rented at a cost of $33,000 to produce Bromonts special order. If the special order is accepted, calculate its effects on Axias profit. Show your calculations.