Managers must often decide between two or more alternatives. Differential analysis is used in decision making. When using differential analysis, it is important to only include those amounts that are different between the alternatives. Differential cost is subtracted from differential revenue to determine differential income/loss.

When calculating differential cost, sunk costs are _____

a. Fixed costs

b. Irrelevant costs

c. Relevant costs

d. Variable costs

Galaxy Corporation currently produces and sells 22,000 soccer balls per month at a price of $24. All sales are made in the United States. Its factory is capable of producing 25,000 soccer balls per month.

A European retail store has recently contacted Galaxy Corporation and offered to buy 2,000 soccer balls at $12.50 each. If the offer is accepted, the sale is not expected to have any effect on the current level of sales or the current selling price in the United States.

The accounting department has provided the cost data per soccer ball.

Direct materials	$4.00
Direct labor	4.50
Variable factory overhead	3.00
Shipping	1.25
Packaging	0.50
Selling commission	2.00
Fixed factory overhead	2.00
Total cost	$17.25

Galaxy Corporation has excess manufacturing capacity to produce the components without incurring additional fixed factory overhead. Since the European retailer has approached Galaxy Corporation about the sale, no selling commission will be paid on this sale. What per-unit manufacturing cost should be used in determining whether Galaxy Corporation should accept the special order?

a. $17.25

b. $13.25

c. $15.25

d. $10.25

Complete the table to compare the per-unit cost analysis for the special order. Enter all amounts as positive numbers except for a net loss. If an amount is zero, enter "0". The cost data for the special order is given below:

Direct materials	$4.00
Direct labor	4.50
Variable factory overhead	3.00
Shipping	1.25
Packaging	0.50
Selling commission	2.00
Fixed factory overhead	2.00
Total cost	$17.25

Special Order Differential Analysis Report
Differential revenue from accepting offer:
Revenue from sale of 2,000 additional units at $12.50	$____
Differential cost of accepting offer:
Variable costs of 2,000 additional units at $____	?
Differential income (loss) from accepting offer	$____

Based on the analysis, Galaxy Corporation should ______(reject/accept) the special order. If the order is accepted, its overall income will____(decreas/increase) by $____.