Gostkowski Company produces and sells 75,000 boxes of specialty foods each year. Each box contains the same assortment of food. The company has computed the following annualcosts:

Cost Item Total Costs

Variable production costs $ 375,000

Fixed production costs 530,000

Variable selling costs 225,000

Fixed selling and administrative costs 170,000

Total costs $ 1,300,000

Gostkowski normally charges $30 per box. A new distributor has offered to purchase 7,500 boxes at a special price of $26 per box. Gostkowski will incur additional packaging costs of $1 per box to complete this order.

Requirements

(a)

Suppose Gostkowski has surplus capacity to produce 7,500 more boxes. What will be the effect on Gostkowski's income if it accepts thisorder?

(b)

Suppose that instead of having surplus capacity to produce 7,500 moreboxes, Gostkowski has surplus capacity to produce only 1,500 more boxes. What will be the effect on Gostkowski's income if it accepts the new order for 7,500 boxes?