Rovio Suksia, a Finnish company, produces cross-country ski poles that it sells for 34 a pair. (The Finnish unit of currency, the euro, is denoted by .) Operating at capacity, the company can produce 25,000 pairs of ski poles a year. Costs associated with this level of production and sales are given below:

	Per Pair			Total
Direct materials		8			200,000
Direct labor		3			75,000
Variable manufacturing overhead		2			50,000
Fixed manufacturing overhead		2			50,000
Variable selling expense		3			75,000
Fixed selling expense		4			100,000
Total cost		22			550,000

Required:

1.

The Finnish army would like to make a one-time-only purchase of 2,500 pairs of ski poles for its mountain troops. The army would pay a fixed fee of 4 per pair, and in addition it would reimburse Rovio Suksia for its unit manufacturing costs (both fixed and variable). Due to a recession, the company would otherwise produce and sell only 22,500 pairs of ski poles this year. (Total fixed manufacturing overhead cost would be the same whether 22,500 pairs or 25,000 pairs of ski poles were produced.) The company would not incur its usual variable selling expenses with this special order. If Rovio Suksia accepts the armys offer, by how much would net operating income increase or decrease from what it would be if only 22,500 pairs of ski poles were produced and sold during the year?

2.

Assume the same situation as described in requirement (1) above, except that the company is already operating at capacity and could sell 25,000 pairs of ski poles through regular channels. Thus, accepting the armys offer would require giving up sales of 2,500 pairs at the normal price of 34 a pair. If the armys offer is accepted, by how much will net operating income increase or decrease from what it would be if the 2,500 pairs were sold through regular channels?