Lake Shore Inc. (LSI) manufactures several specialized high quality "creams" used by icecream and gelato manufacturers. Because of LSI special processes, high quality, precise and consistent ingredients, SI often receives special orders from gelato companies looking at introducing new products or when those companies also receive higher than expected demand. For each type of specialized cream produced, LSI has formulated the precise mix to yield high quality icecreams and gelato. LSI's operating is shown below. Gelato Supreme has asked LSI to deliver a special order with quantities and price as outlined in the data below. LSI's production costs would not change, however, no variable selling costs will be incurred on the special order. There will alsobe a one-time special packaging charge also listed below. LSi can process the special order in two equal batches. And LSI does not anticipate any incremental batch processing costs since most of these are fixed costs. The following information is provided about LSI's current operations: Sales and production cost data for 20,000 bags, per bag: Sales price $41.00 Variable manufacturing costs $18.00 Variable selling costs. $3.00 Fixed manufacturing costs $12.00 Fixed marketing $4.00 Additional information: Operating capacity (per month) 22,000. pails(100 litres each) Current monthly production/sales level 20,000 pails Batch size. 1000pails Current number of batches per month 20batches

Information regarding special order: No. of pails (100 litres each) 5000 Offering price (total sales revenue) $13,000 One-time (delivery) charge for the order $2,500 Note: No marketing costs would be associated with the special order. Since the order would be used in research and consistency is critical, Gelato Supreme requires that Li fill the entire order of 5,000 pails. pails (100 litres each) pails pails batches For each of the required below, please clearly show all working, format statements, and analysis and label each number. Showing numbers ONLY are not sufficient. Required: 1. What is the total relevant cost (to nearest whole dollar) of filling this special order? 2. What would be the change in operating income if the special order is accepted? 3.Prepare cpmparative contribution format income statements, with the special order, and without the special order. Clearly show the What is the breakeven selling price per unit (i.e.. the selling price that would result in a zero effect on operating income?). 4. Suppose that after LSI accepts the special order it finds that unexpected production delays will not allow it to supply all 5,000 units from its own plants and meet the promised delivery date. It can provide the same material purchasing the material in bulk from a competing firm. The materials would then be packaged in LSI bags to complete the order. LSI knows the competitor's materials are very good quality, but it cannot be sure that the quality meets its own exacting standards. There is not enough time to carefully test the competitor's product in an effort to determine product quality. What should LSI do? Specifically, discuss ethical and strategic issues associated with the decision.