Ovation Company has a single product called a Bit. The company normally produces and sells 33,600 Bits each year at a selling price of $34 per unit. The company's unit costs at this level of activity are given below: Direct materials Direct labour Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fixed selling expenses Total cost per unit $11.70 3.60 2.40 3.90 ($131,040 total) 2.70 3.60 ($120,960 total) $27.90 A number of questions relating to the production and sale of Bits follow. Each question is independent. Required: 1. Assume that Ovation Company has sufficient capacity to produce 50,400 Bits each year without any increase in fixed manufacturing overhead costs. The company could increase its sales by 25% above the current 33,600 units each year if it were willing to increase the fixed selling expenses by $66,000. a. Calculate the incremental net operating income. Answer is complete and correct. Incremental operating income $ 48,240 5. An outside manufacturer has offered to produce Bits and ship them directly to Ovation's customers. If Ovation Company accepts this offer, the facilities that it uses to produce Bits would be idle; however, fixed manufacturing overhead costs would be reduced by 70%. Since the outside manufacturer would pay for all shipping costs, the variable selling expenses would be only two-thirds of their current amount. Compute the unit cost that is relevant for comparison to the price quoted by the outside manufacturer. (Do not round your intermediate calculations. Round your answer to 2 decimal places.) Answer is complete but not entirely correct. Total avoidable unit cost $ 12,768.00