Question 3 Alice Engineering manufactures small engines. The engines are sold to manufacturers who install them in such products as lawn mowers. Its manufacturing plant has the capacity to produce 9000 engines each month. Current production and sales capacity is 80 per cent. The normal selling price of an engine is $134. Alice engineering has just received a special one- time only order for 1800 engines at $122 per engine. Alice Engineering makes engines for its existing customers in batch sizes of 100 engines (72 batches x 100 engines per batch = 7200 engines). The special order requires Alice engineering to make the engines in 18 batches of 100 each. Cost information for current activity level is as follows: Variable costs that vary with number of units produced -Direct materials $332,000 Direct labour 450,000 has Variable costs that vary with number of batches bas 03 edol 72 batches x $112 per batch 8,064 Fixed costs - Fixed manufacturing costs 456,000 Fixed marketing costs 225,125 Total costs $1,471,189 Required: a) Should Alice Engineering accept this special order? Show calculations to support your answer. (7 marks) b) Suppose plant capacity was only 8000 engines instead of 9000 engines each month. The special order must either be taken in full or be rejected completely. Should Alice Engineering accept the special order? Show calculations to support your answer. (6 marks) (c) Assume that monthly capacity is 9000 engines and Alice Engineering is planning to accept the special order. However, Alice Engineering is concerned that if it accepts the special order, its existing customers will immediately demand a price discount of $4 in the month in which the special order is being filled. Should Alice Engineering accept the special order under these conditions? Show calculations to support your answer. (4 marks) d) Explain how the existence of spare production capacity can affect the choice of whether to accept or reject a special order. (3 marks) (7 +6+4+ 3 = 20 marks)