Question 3 - 12 marks 4 5 6 Arcade Production Ltd has a current activity level of 5,000 units per month, the costs of producing and selling one unit of the company's only product are as follows: 7 3 Direct materials Direct labour Variable MOH Fixed MOH Variable S&A expenses Fixed S&A expenses $ 6.00 $7.00 $ 2.00 $ 10.00 $4.00 $5.00 The normal selling price is $25 per unit. An order has been received from a potential customer overseas 1 5,000 units at a price of $23.00 per unit. This order would not affect regular sales. The company's capacity 9,000 units per month and enough excess capacity exists to fill this order. Required: 1. If the order is accepted, by how much will monthly profits increase or decrease? (8 marks) (The order would not change the company's total fixed costs.) Per Unit Total 5000 Number of units Instructions Q1 Q2 Q3 New (hp Total 5,000 $ 115,000 Por Unit M Number of units Incremental revenue $ 230 Increnental costs Variable costs 28 Direct materials 600 20 Direct labour 700 0 Variable MOH 1 Variable S&A . Total variable cost Fixed costs Total incremental cost Incremental operating income Monthly profits would 2. Assume the company has 200 units of this product left over from last year which are inferior to the latest current model These units will be sold through regular selling channels at reduced prices What unit costs are relevant for establishing/setting a minimum selling price for these left over units? (4 marks) Fixed MOH Instructions Q1 Q2 03 New Incernant operating incomo Monthly profits would 2. Assume the company has 200 units of this product of over from tast year which are interior to the team These units will be sold through regular selling channels at reduced prices What unit costs are relevant for establishing/setting a minimum selling price for these will cerits? (4 m) Fixed MOH Variable S&A expenses Fixed S&A expenses Direct materials Direct labour Variable MOH Relevant cost for establishing minimum price