E. Berg & Sons build custom-made pleasure boats that range in price from $10,000 to $250,000. For the past 30 years, Ed Berg Sr., has determined the selling price of each boat by predicting the costs of materials, labour, an allocated portion of total overhead (which includes marketing and administrative costs) and adding 20% markup to the total of these costs. For example, a recent price quotation was determined as follows: Direct materials Direct manufacturing labour Total overhead Total predicted costs.. 20% markup Selling price. $ 5,000 8,000 2.000 15,000 3,000 $ 18,000 The total overhead figure was determined by budgeting total overhead costs for the year and applying them at 25% of direct labour. If a customer rejected the price and business was slack, Ed Berg Sr., would often be willing to reduce his markup to as little as 5% of predicted costs The average markup for the year is expected to be 15%. Ed Berg Jr., has just completed a course on pricing in which the contribution margin approach was emphasized. He feels this approach would be helpful in determining the selling prices of their boats. Total overhead for the year has been budgeted at $150,000 of which $90,000 is fixed and the remainder is variable in direct proportion to direct labour. Required: Assume the customer in the example rejected the $18,000 quotation and also rejected a $15,750 quotation (5% markup) during a slack period. The customer countered with a $15,000 offer. 1. What is the minimum selling price Ed Berg Jr., could quote without decreasing or increasing operating income? 2 What is the difference in operating income between accepting and rejecting the customer's offer at this minimum price