Deluxe Gingerbread Houses Co. produces a single product. The cost of producing and selling a single gingerbread house at the company's normal activity level of 70,000 units per month is as follows:

Direct Materials $29.60

Direct Labour $ 5.80

Variable Manufacturing Overhead $ 2.50

Fixed Manufacturing Overhead $17.20

Variable Selling & Administrative Expense $ 1.80

Fixed Selling & Administrative Expense $ 6.70

The normal selling price of the product is $72.90 per unit.

An order has been received from an overseas customer for 2,000 units to be delivered this month at a special discounted price. The customer would like additional icing options and a unique house design. These special requirements would require additional direct labour costs of $1.20 per house and $2.25 per house in additional direct materials costs. It would also require them to purchase special cookie forms at a cost of $250; these would have no other use once the special order was completed. This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $1.10 less per unit on this order than on normal sales.

Required:

1. Suppose there is ample idle capacity to produce the units required by the overseas customer, and the special discounted price on the special order is $66.10 per unit. By how much would this special order increase (decrease) the company's operating income for the month? (9 marks)
2. Suppose that they are operating at 100% capacity and that accepting the special order would require cutting back on production for regular customers. What would be the minimum acceptable price per unit for the special order? (6 marks)