Glade Company produces a single product. The costs of producing and selling a single unit of this product at the company's current activity level of 8,000 units per month are:

Direct Materials ........................ $2.50

Direct labor ... $3.00

Variable manufacturing overhead .... .$0.50

Fixed Manufacturing Overhead ..... $4.25

Variable selling and administrative expenses. $1.50

Fixed selling and administrative expenses.. $2.00

The normal selling price is $15 per unit. The company's capacity is 10,000 units per month. An order has been received from a potential customer overseas for 2,000 units at a price of $12.00 per unit. This order would not affect regular sales.

Required:

1. If the order is accepted, by how much will monthly profits increase or decrease? (The order would not change the company's total fixed costs.)
2. Assumethecompanyhas500unitsofthisproductleftoverfromlastyearthat are inferior to the current model. The units must be sold through regular channels at reduced prices. What unit cost is relevant for establishing a minimum selling price for these units? Explain.