Carson Company has the following budgeted operating results for 2014:

Revenue (20,000 units @$40) $800,000

Variable costs:

Manufacturing $400,000

Selling 120,000 $520,000

Contribution Margin 280,000

Fixed costs:

Manufacturing $100,000

Selling $ 80,000 $180,000

Operating income $100,000

A foreign wholesaler wants to buy 2,000 units at a price of $28 per unit. All fixed costs would remain within the relevant range. There will be no variable selling costs on the special order units. Carson Corp. has a capacity to produce 24,000 units per year.

Required:

a. Should Carson Corp. produce the special order? Justify your answer. If Carson corp. accepts the special order, they must produce and sell the entire 2,000 units for $28 per unit.

b. Should Carson Corp. produce the special order for 5,000 units for $28 per unit? Justify your answer by redoing the income statement assuming the special order. If Carson corp. accepts the special order, they much produce and sell the entire 5,000 units for $28. In other words, they may lose regular customers.