PROBLEM 1 (15 Points) Carnival Toys produces a plastic three-ring circus set which includes a tent, eircus figures and animals. The set is sold to department stores for $100. The capacity of the plant is 20,000 sets per year. Production costs per set are as follows: Direct Material Variable overhead Total Fixed Overhead for the year $550,000 $10 S20 Direct labor Variable selling S15 S5 A major Canadian store, which had previously not purchased from Carnival has approached the marketing manager about buying 5,000 sets for $85 US each. No selling expenses would be incurred on this offer, but the Canadian firm wants its store name on the package. This means an additional S1 US cost per set. Because the company is currently selling 18,000 sets, acceptance of this job would it to reject some of its current business REQUIRED: a. What is the current operating income of Carnival? b. If Carnival accepted the offer, what would be the operating income of the company? Should they accept the offer? Why/why not? If carnival were currently selling only 10,000 sets per year and the company wanted to earn S150,000 of operating income for the year, what per unit selling price for the 5,000 would Carnival have to counteroffer to the Canadian firm? c. PROBLEM 2 (15 Points) Dakota Corporation manufactures a small part needed in the production of its major product. Discussions are currently being held regarding buying this part from Acme Manufacturing. The following costs per unit to manufacture data are available: Material Labor Variable Overhead Fixed Overhead-Applied 6 S11 S 3 S 5 Costs to purchase: Purchase price (subject to 3% discount) S20; Freight Charges si. REQUIRED: a. If Dakota always takes advantage of discounts, should they make or buy the part? Explain