Special$-$Order Decision

The Cool Can Company manufactures drink koozies and has been approached by a new customer with an offer to purchase $15,000$ units at a per$-$unit price of $$7\mathrm{.}00.$ The new customer is geographically separated from Cool Can's other customers, and existing sales will not be affected. Cool Can normally produces $82,000$ units but plans to produce and sell only $65,000$ in the coming year. The normal sales price is $$12$ per unit. Unit cost information is as follows:

Line Item Description Cost

Direct materials $$3\mathrm{.}10$

Direct labor $1\mathrm{.}50$

Variable overhead $1\mathrm{.}00$

Fixed overhead $1\mathrm{.}80$

Total $$7\mathrm{.}40$

However, assume that Cool Can plans to produce and sell $70,000$ units in the coming year $($rather than the originally anticipated $65,000$ units$).$

Required:

$1.$ Using Excel $($or some other spreadsheet software tool$),$ calculate the amount by which total operating income increases or decreases if the order is accepted.

fill in the blank $1$ of $1$$

$2.$ Conceptual Connection: Should Cool Can accept the special order when sales at the regular price are expected to be $70,000$ units?

$3.$ Now assume that all direct variable costs are $20\%$ higher and all indirect costs are $40\%$ higher than originally stated in the set up box. These cost increases apply to both normal and special$-$order units. Finally, assume the new customer has offered to increase its price to $$10\mathrm{.}00($from the $$7\mathrm{.}00$ originally stated in the set up box$).$ Using your spreadsheet, calculate the amount by which total operating income increases or decreases if the order is accepted.

fill in the blank $1$ of $1$$