Special Order Decision with Idle Capacity and at Full Capacity. The following quarterly financial data are for Santiago, Inc., a maker of compressors. On average, Santiago makes 20,000 compressors each quarter.

	Per Unit	Total Quarterly Data at 20,000 Compressors
Sales revenue	$300	$6,000,000
Variable Cost	$100	$2,000,000
Contribution Margin	$200	$4,000,000
Fixed Cost		$3,500,000
Profit		$500,000

Santiago received an offer from a one-time customer to purchase 5,000 compressors this coming quarter for $275 per unit. Santiago can produce up to 30,000 units a quarter, so the special order would not affect regular customer sales. Variable costs per unit will remain at $100. This special order will have no effect on fixed costs.

Required:

1. Using the differential analysis format, determine whether Santiago would be better off rejecting the special order (Alternative 1) or accepting the special order (Alternative 2).
2. Summarize the result of accepting the special order.
3. Assume Santiago is approached with the same special offer, but it has limited capacity and can only produce up to 20,000 units per quarter. Thus, any special orders will result in reduced sales to regular customers. Using the differential analysis format, determine whether Santiago would be better off rejecting (Alternative 1) or accepting (Alternative 2) the special order.
4. Summarize the result of accepting the special order in requirement (3) .