1. The Production Division produces and sells 150,000 toy pianos. The maximum capacity is 200,000 toy pianos.

The unit cost of manufacturing a toy piano is as follows (for 150,000 pianos):

Direct materials $10

direct labor 2

Variable overhead 3

Fixed overhead 5

Total cost $20

Other costs incurred by the Production Division are as follows:

Total fixed selling and administrative expenses $500,000

Variable sale $1 per unit

Currently, the Production Division sells toy pianos to outside customers for $29.

The special-order customer wants to buy 50,000 toy pianos. Variable selling expenses are avoided if the toy pianos are sold to the Special Order Customer.

Required:

1. Assume that the Production division is capable of producing 200,000 toy pianos per year (therefore, it has additional capacity to produce an additional 50,000 units). What is the minimum amount that the Production Division must accept for the special order?

2. What is the Net Operating Income of the Production Division if they accept the special order price of $20?

3. Now, consider all the original facts but assume that the Production Division is already operating at full capacity (that means they are making and selling 200,000 pianos). What is the minimum amount that the Production Division must accept for the special order?
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problem #2

The Milk Inc. has the following operating results for making 150,000 pounds of chocolate:

Total sales $60,000

Total variable expense 37,500
Total Fixed Expenses 12,000

Net operating result 10,500

The Milk Chocolate Division has the capacity to produce and sell 200,000 pounds of chocolate per year. Suppose The Peanut Butter Inc. wants to buy 60,000 pounds of chocolate from The Milk Inc. Under these conditions,

Required 

How much per pound of chocolate would The Milk Inc. have to charge Peanut Butter Inc. for this special order to maintain its operating income? current net? Round your answer to 2 decimal places.

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