Calgary Company manufactures basketballs. It has current capacity to produce 420,000 basketballs. After 420,000, each additional 15,000 basketballs increases fixed cost by $4,000 in a step fashion. The forecasted income statement for the year before any special order is as follows:

Amount PER UNIT

Sales $4,000,000 $10.00

Manufacturing cost if goods sold 3,200,000 8.00

Gross Profit 800,000 2.00

Selling expenses 300,000 0.75

Operating income $ 500,000 $ 1.25

Fixed costs included in the above forecasted income statement are $1,200,000 in manufacturing cost of goods sold and $100,000 in selling expenses.

A special order was made by Notre Dame University offering to buy 40,000 basketballs for $7.00 each from Calgary Co. There will be no variable selling expenses associated with the special order, as there will be no sales commission earned and the buyer will pick them up, so no shipping expense.

Because these 40,000 additional basketballs will need Leprechaun logos, there will be an additional $1.50 direct material per basketball for the special order.

What is the variable manufacturing cost per unit of the special order?

By what amount would operating income be increased (or decreased) as a result of accepting the special order by increasing capacity and fixed cost as necessary.

What is the variable selling expense per unit in the current situation (before special order)?

By what amount would operating income be increased (or decreased) as a result of accepting the special order by retaining current 420,000 basketball capacity and foregoing just enough regular sales so as not to exceed capacity.