Question 1. Waterloo Co. sells product P-14 at a price of $48 a unit. The per-unit cost data are direct materials $15, direct labour $10, and overhead $12 (75% variable). Waterloo Co. has sufficient capacity to accept a special order for 40,000 units, but at a discount of 25% on the regular price. Selling costs associated with this order would be $3 per unit.

Determine whether Waterloo Co. should accept the special order.

Question 2. Emil Manufacturing incurs unit costs of $7.50 ($4.50 variable and $3.00 fixed) in making a sub-assembly part for its finished product. A supplier offers to make 10,000 of the parts for $5 per unit. If it accepts the offer, Emil will save all variable costs and $1 of fixed costs.

Prepare an analysis showing the total cost savings, if any, that Emil will realize by buying the part. [5 marks]