Perry Company makes a variety of paper products. One product is 20 grams copier paper, packaged 5,000 sheets to a box. One box normally sells for $18. A large wholesaler offered to purchase 3,000 boxes at $14 per box. Costs per box are as follows: (i) (ii) Direct materials Direct labour Variable overhead Fixed overhead DIPL/ACC2103/Aug 2022/MainEOP Required: $8 $3 The company is operating significantly below the maximum productive capacity. Fixed overhead costs are unavoidable. Unfortunately, there will be additional fixed cost of $2,000 to produce these extra 3,000 boxes. $1 $5 Page 7 of 9 What will be the effect on operating income if the special order is accepted? Should Perry Company accept the special order? (5 marks) State and explain TWO (2) risks of selling to the wholesaler at such a low price. (3 marks)

Perry Company makes a variety of paper products. One product is 20 grams copier paper. packaged 5,000 sheets to a box. One box normally sells for $18. A large wholesaler offered to purchase 3,000 boxes at $14 per box. Costs per box are as follows: The company is operating significantly below the maximum productive capacity. Fixed overhead costs are unavoidable. Unfortunately, there will be additional fixed cost of $2,000 to produce these extra 3,000 boxes. DIPLACC2IO3Ang2022MainEQP Page 7 or 9 Required: (i) What will be the effect on operating income if the special order is accepted? Should Perry Company accept the special order? (5 marks) (ii) State and explain TWO (2) risks of selling to the wholesaler at such a low price