Dans Donuts can make as many as 500,000 kolaches annually. Current production and sales are 475,000 annually. See below for additional per unit information (unless stated otherwise):

Sales Price $2

Variable overhead $.35

Direct materials $.5

Direct labor $.25

Total Fixed overhead $125,000

A grocery store wants to purchase 50,000 kolaches annually; however, they only wish to pay $1.60 per kolache. What effect would accepting the order have on the companys net operating income?

1. NOI would increase by $22,500
2. NOI would decrease by $22,500
3. NOI would increase by $25,000
4. NOI would increase by $2,500

What is the accounting rate of return for a piece of equipment costing $70,000, has a useful life of 5 years and salvage value of $10,000 that provides annual cost savings of $25,000?

1. 18.57%
2. 35.71%
3. 2.8%
4. 41.67%