Kintek Ltd produces electronic calculators. The firm recently received a special-order inquiry from Anderson Electronics Inc. which has offered to purchase a large order of 6,000 calculators for a price of $38 each. Kinteks normal selling price for the calculator is $55. The cost data for one calculator is as follows: Direct material $16 Direct labour 7 Manufacturing overhead 17 Variable selling expense 5 Total unit cost $45 Additional information:

• Kintek has decided that, if it accepts the order, it will purchase additional specialized equipment costing $4,500 and will spend an additional $5,000 in set up costs.
• The manufacturing overhead costs include $6 of variable overhead and $11 of fixed overhead per unit.
• There would be no shipping expense or sales commission on the special order, so 60% of the variable selling expense would be eliminated.
• Kintek would allocate $3,000 of fixed administrative costs to the order as part of the cost of doing business.
• Kintek has sufficient unused capacity to produce the order.

Required:

1. Assume regular sales would not be affected by this special order. Should Kintek Ltd accept the order? By how much would profit increase or decrease if the order is accepted? Show your work. (9 marks)

2. Assume that by accepting this order Kintek Ltd would lose 1,000 units of regular sales.
   1. Calculate the opportunity cost from accepting the special order. (2 marks)
   2. Should Kintek accept the special order in this situation? (1 mark)

3. Refer to the original cost data. Kintek Ltd has 100 of last-years model calculators that it has been unable to sell, even at a reduced price. Another company, Baileys Bargain Basement Stores Ltd. has agreed to buy all 100 last years calculators from Kintek if the price is right. The agreement specifies that Kintek would have to pay $3 per calculator to have the batteries replaced. Assume that no selling expenses would be incurred and that the other unit costs (given above) have not changed since 2013. What is the minimum price that Kintek should charge Baileys? Show your work for full marks. (1 mark)