Incremental Decisions (Special Applications of the Cost Equation) 1. Special Order Terry Peak Manufacturing Corp makes rock hammers for mountain climbing. Terry Peak has the capacity to produce 8000 units per year due to limited space in it's CNC machining equipment. Currently Terry Peak makes 6000 units annually and sells them for $40 each. The costs are as follows: Direct Material Per Unit $6.00 Direct Labor Per Unit $5.00 Variable OH Per Unit $6.00 Shipping and Packaging Per Unit $1.50 Sales Rep Commissions Per Unit $2.00 Direct Fixed Manufacturing Overhead $36,000 Per Year Other Selling General & Administrative $48,000 Per Year Colorado Custom Equipment company offered to buy 1000 hammers from Terry Peak for a price of $20 each. The Colorado order would pay out only 50% of the usual sales commission and the shipping/packaging cost per unit would only be $.50. What would be the increase/decrease in net profit if Terry took this order? Considering any other information you want to include, would you take this order as is (there is no right or wrong answer to this part, but please think about it)? 2. Make or Buy Terry Peak's owner, Jerry, is tired of running an entire company and wants to outsource all production. Expenses related to Selling/Commissions, General, and administrative expenses will remain. Killdeer Mountain Manufacturing has offered to produce the units and provide them to Terry Peak at a cost of $28.00 per unit. Terry Peak could also sublet its factory to Steffes Church Furniture Manufacturing for $34,000 per year if it elects to buy the hammers from Killdeer. At the current volume of 6000 units, how much more or less profit would Terry Peak make if it outsourced all production under this offer from Killdeer Mountain