The Amazon Company makes a single product called a LAN. The company has the capacity to produce 40,000 LANS per year. Using Absorption costing, per-unit costs to produce one LAN at a 40,000-activity level follow:

Direct Materials	$20
Direct Labour	$10
Variable Manufacturing Overhead	$ 5
Fixed Manufacturing Overhead*	$ 7
Variable Selling Expense	$ 8
Fixed Selling Expense*	$ 2

* Based on 40,000 units produced

The regular selling price for one LAN is $60.

Required:

A Special Order received at Amazon from the Apple Company to purchase 8,000 LANS next year at 15% off the regular selling price. If this Special Order is accepted, the variable selling expense will reduce by 25%. However, Amazon would have to purchase a specialized machine to engrave the Saunders name on each LANS in the Special Order. This machine would cost $12,000, and Fox would have no use for it after the Special Order. The total fixed costs, both manufacturing and selling, are constant within the relevant range of 30,000 to 40,000 LANS per year.

Required:

2. What would the impact be on Foxs Net Income (ignore taxes) of accepting the Special Order? (SHOW YOUR WORK.) (4 marks)

3. Should Fox accept the Special Order from Apple Company? Why? (2 marks)

Amazon Company, also has 2,000 LANS that are slightly defective. They have been unable to sell them through regular channels at 50% off the regular selling price. What is the lowest selling price they should be willing to accept to sell the 2,000 defective LANS? Explain why your answer is correct.