Question 2 (28 marks) CWB Inc. produces stuffed bunnies. The company normally produces and sells 78,000 stuffed bunnies each year at a selling price of $50 per unit. The company's unit costs at this level of activity are given below: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fixed selling expenses Total cost per unit $9.30 8.00 2.00 6.00 ($468,000 total) 1.50 6.00 ($468,000 total) $32.80 Each question below is independent. Required (Show your calculations): 1. (8 marks) Assume that CWB Inc. has sufficient capacity to produce 93,600 stuffed bunnies each year without any increase in fixed manufacturing overhead costs. The company could increase its sales by 20% above the present 78,000 units each year if it were willing to increase the fixed selling expenses by $139,000. Compute the incremental net operating income. 2. (4 marks) The company has 500 completed stuffed bunnies on hand that have some irregularities and are therefore considered to be "seconds." Due to the irregularities, it will be impossible to sell these units at the normal price through regular distribution channels. What unit cost figure is relevant for setting a minimum selling price? Briefly explain why. (Round your answer to 2 decimal places.) 3. (8 marks) Due to a strike in its supplier's plant, CWB Inc. is unable to purchase more material for the production of stuffed bunnies. The strike is expected to last for two months. The Company has enough material on hand to operate at 25% of normal levels for the two-month period. As an alternative, it could close its plant down entirely for two months. If the plant were closed, fixed manufacturing overhead costs would continue at 60% of their normal level during the two-month period and the fixed selling expenses would be reduced by 25%. What would be the incremental impact on profits of closing the plant for the two-month period? (Hint: Describe your answer in the form of "profit would increase/decrease by SXXX"). 4. (8 marks) An outside manufacturer has offered to produce stuffed bunnies and ship them directly to CWB's customers. If CWB Inc. accepts this offer, the facilities that it uses to produce stuffed bunnies would be idle; however, fixed manufacturing overhead costs would be reduced by 30%. Because the outside manufacturer would pay for all shipping costs, the variable selling expenses would be only three-fourth of their present amount. What is the maximum price per unit quoted by the outside manufacturer that CWB Inc. is willing to accept? (Round your answer to 2 decimal places.)