Please show your work.

IPL Company manufactures and sells LED cricket stumps. Operating at capacity, the company can produce and sell 30,000 stumps per year. Costs associated with this level of production and sales are given below:

Per Unit Total

Direct materials $15 $450,000

Direct labor $8 $240,000

Variable manufacturing overhead $3 $90,000

Fixed manufacturing overhead $9 $270,000

Variable selling expenses $4 $120,000

Fixed selling expenses $6 $180,000

Total cost $45 $1,350,000

The LED stumps normally sell for $50 each. Fixed manufacturing overhead is constant at $270,000 per year within the range of 25,000 through 30,000 stumps per year.

Required:

Part1. Assume that due to a recession, IPL Company expects to sell only 25,000 stumps through regular channels next year. The World Cricket League (ICC) has offered to purchase 5,000 stumps to be used during the World Cup if IPL is willing to accept a 16% discount off the regular price. There would be no sales commissions on this order; thus, variable selling expenses would be slashed by 75%. However, IPL Company would have to purchase a special machine to engrave the ICCs logo on the 5,000 units. This machine would cost $10,000. IPL Company has no assurance that the ICC will purchase additional units in the future. Determine the impact on profits next year if this special order is accepted. 12.5 points

Part 2. Refer to the original data. Assume again that IPL Company expects to sell only 25,000 stumps through regular channels next year. The T20 Company would like to make a one-time-only purchase of 5,000 stumps. The T20 Company would pay a fixed fee of $1.80 per stump, and it would reimburse IPL Company for all costs of production (variable and fixed) associated with the units. Because the T20 Company would pick up the stumps with its own trucks, there would be no variable selling expenses associated with this order. If IPL Company accepts the order, by how much will profits increase or decrease for the year? 12.5 points