Mavericks Company has a single product called a Luka. The company normally produces and sells 60,000 Lukas each year at a selling price of $32 per unit. The company's unit costs at this level of activity are given below: Direct materials $10.00 Direct labor 4.50 Variable manufacturing overhead 2.30 Fixed manufacturing overhead 5.00 ($300,000 total) Variable selling expenses 1.20 Fixed selling expenses 3.50 ($210,000 total) Total cost per unit $26.50 Four questions relating to the production and sale of Lukas follow. Each question is independent. Required: A. Assume that Mavericks Company has sufficient capacity to produce 90,000 Lukas each year without any increase in fixed manufacturing overhead costs. The company could increase in sales by 25% above the present 60,000 units each year if it were willing to increase the fixed selling expenses by $80,000. Would the increase fixed selling expenses be justified? (5 points) B. Mavericks Company has 1,000 Lukas on hand that have some irregularities and are therefore considered to be "seconds. Due to the irregularities, it will be impossible to sell these units at the normal price through regular distribution channels. What unit cost figure is relevant for setting a minimum selling price? Explain. (5 points) C. Due to a strike in its supplier's plant, Mavericks Company is unable to purchase more material for the production of Lukas. The strike is expected to last for two months. Mavericks Company has enough material on hand to operate at 30% of normal levels for the two-month period. As an alternative, Mavericks could close its plant down entirely for the two months. If the plant were closed, fixed manufacturing overhead costs would continue at 60% of their normal level during the two-month period and the fixed selling expenses would be reduced by 20%. What would be the impact on profits of closing the plant for the two- month period? (5 points) D. An outside manufacturer has offered to produce Lukas and ship them directly to Mavericks customers. If Mavericks Company accepts this offer, the facilities that it uses to produce Lukas would be idle; however, fixed manufacturing overhead costs would be reduced by 75%. Because the outside manufacturer would pay for all shipping costs, the variable selling expenses would be only two-thirds of their present amount. Compute the unit cost that is relevant for comparison to the price quote by the outside manufacturer. (5 points)