Question:

Bel Company produces a desks with the following unit cost (excludes selling cost):

Direct Materials	$2.22
Direct Labour	$1.78
Variable Overhead	$3.50
Fixed Overhead	$2.25
Unit Cost	$9.75

The production capacity is 4,000 units per year.

Because of a depressed market, the company expects to produce only 1,800 shelfs for the coming year.

The company also has fixed selling costs totaling $5,000 per year and variable selling costs of $1.50 per unit sold (which relates to the sales commission on each unit sold).

The shelf normally sells for $13.50 each.

At the beginning of the year, a customer from a geographic region outside the area normally served by the company offered to buy 2,200 shelfs for $8.50 each.

The customer also offered to pay all transportation costs as they are outside of the normal region that Belfast sells to.

Since there would be no sales commissions involved, this order would not have any variable selling costs.

Required:

Use the above information to answer the following questions about this special order.

Part A:

If the company accepts this order, will their operating income increase, decrease, or stay the same?

Enter IN for increase, DE for decrease, and NA for stay the same in the space provided.

By how much will operating income change if the order is accepted?

Enter your answer as a positive number.

Part B:

Assume now that the order from the customer was through your most successful salesperson who is expecting to be paid their commission. Also assume that the customer requires you, Belfast, to pay for any related transportation costs which amount to $2.50 per unit.

Considering these new details, will operating income increase, decrease or stay the same if Belfast accepts the order?

Enter IN for increase, DE for decrease, and NA for stay the same in the space provided.

Considering these new details, by how much will operating change if Belfast accepts the order?

Enter your answer as a positive number in the space provided.