Sharri Company budgeted sales of 400,000 calculators at $40 per unit last year.

The following is the cost structure per unit:

• VC = $16 per unit, and
• Fixed manufacturing costs at $10 per unit, that is, $400,000. This cost will remain constant, regardless production and sales.

1. A special order for 40,000 calculators at $23 each was received by Sharri in March. Sharri has sufficient plant capacity to manufacture the additional quantity without incurring any additional fixed manufacturing costs ($400,000 will not change regardless whether they will accept the order or not). However, the production would have to be done on an overtime basis at an estimated additional variable cost of $3 per calculator. Acceptance of the special order would not affect Sharri's normal sales and no selling expenses would be incurred (show work to justify recommendation).

[7 marks)

1. What if: In addition to the added $3 VC/unit Sharri also has to acquire a special piece of equipment to fill this order? The equipment cost $100,000 and has no residual value to the company beyond this order. Should the special order be accepted in this case? (show work to justify recommendation) [7 marks)

Required:

1. By creating an Income Statement, show calculation whether the special order should be accepted for both situations: a and b?

What is the difference between opportunity cost and sunk cost? Give an example to illustrate your arguments.