Beaute Co. manufactures cosmetics and has been approached by a new customer with an offer to purchase 175,000 units at a per-unit price of $27. The new customer is geographically separated from Beautes other customers, and existing sales will not be affected. Beaute normally produces 1,190,000 units but plans to produce and sell only 890,000 in the coming year. The normal sales price is 32.5 per unit. Unit cost information is as follows:

Direct materials $5.85

Direct labor $3.20

Variable overhead $2.75

Fixed overhead $8.90

If Caster accepts the order, no fixed manufacturing activities will be affected because there is sufficient excess capacity. But the new customer wants to have its company logo affixed to each product using a label. Beaute Co. needs to purchase a special logo labeling machine that will cost $35,875. The machine will be able to label the 175,000 units and then it will be scrapped without any residual value. In addition, each special logo requires additional direct materials of $0.35.

Required:

1. What are the alternatives for Beaute Co.? Which items are classified as relevant cost?
2. Should Beaute Co. accept the special order? By how much will profit increase or decrease if the order is accepted?