Flash City Inc. manufactures small flash drives and is considering raising the price by 75 cents a unit for the coming year. With a 75-cent price increase, demand is expected to fall by 7,000 units.

	Current	Projected
Demand	78,000 units	71,000 units
Selling price	$9.00	$9.75
Incremental cost per unit	$6.80	$6.80

Would you recommend the 75-cent price increase?

1)	No, because demand decreased.

2)	No, because the selling price increases.

3)	Yes, because contribution margin per unit increases.

4)	Yes, because operating profits increase.

Question 5

Crandle Manufacturers Inc. is approached by a potential customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. The company has excess capacity. The following per unit data apply for sales to regular customers:

Variable costs:
Direct materials	$130
Direct labor	60
Manufacturing support	105
Marketing costs	95
Fixed costs:
Manufacturing support	175
Marketing costs	65
Total costs	630
Markup (50%)	315
Targeted selling price	$945

What is the change in operating profits if the one-time-only special order for 1,030 units is accepted for $550 a unit by Crandle?

1)	$164,800 increase in operating profits

2)	$164,170 increase in operating profits

3)	$164,170 decrease in operating profits

4)	$164,800 decrease in operating profits