QUESTION:

Jennifer Inc. produces and sells component parts to manufactures who produce appliances. They have capacity to produce 120,000 units and currently they produce and sell 105,000 units for $35.00 each.

A new customer has asked Jennifer Inc. to sell them 12,000 units for $18.75 each. The customer is located in a separate geographical area which Jennifer Inc. does not sell to and therefore Jennifer Inc.'s sales are not expected to change.

Unit information for Jennifer's normal level of production is as follows:

Direct materials	$7.20
Direct labour	$5.80
Variable overhead	$4.10
Fixed overhead	$7.90
Total	$25.00

Using the above information answer the following questions.

Should Jennifer Inc. accept or reject the special order?

Enter the letter A for accept.

Enter the letter B for reject.

Would operating income increase or decrease if the special order was accepted?

Enter the letter A for increase.

Enter the letter B for decrease.

By how much will operating income increase or decrease by if the order was accepted?

Enter your answer as a positive number even if operating income would decrease.

Now assume that the new customer would like their own brand name printed on the part. If Jennifer Inc. accepts the order, it will incur a one-time fixed cost of $21,000 for the rental of an imprinting machine.

If Jennifer Inc. accepts the special order by what amount will the operating income increase or decrease?

If the operating income will DECREASE enter your answer as a NEGATIVE number. For example, if your answer is a decrease of $10,000.00, then enter -10000.00

If the operating income will INCREASE enter your answer as a POSITIVE number.