The data below pertains to the Block Company for the year just ended. The company makes industrial power drills. The data shows the costs of the plastic housing separately from the costs of the electrical and mechanical components. A B A+B Electrical Plastic Industrial and Housing Drills Mechanical Components Sales: 100 000 units @ $100 $10 000 000 Variable Costs Direct materials $4 400 000 500 000 4 900 000 Direct labour 400 000 300 000 700 000 Variable factory overhead 100 000 200 000 300 000 Other variable costs 100 000 100 000 Sales commissions (@10% of sales 1 000 000 100 000 Q00 Total variable costs 6 000 000 1 000 000 7 000 000 Contribution margin 3 000 000 Separable fixed costs 1 900 000 400 000 2 300 000 Common fixed costs 320 000 80 000 400 000 Total fixed costs 2 220 000 480 000 2 700 000 Operating income 300 000 Required: 1. During the year, a prospective customer in an unrelated market offered $82 000 for 1 000 drills. The latter would be in addition to the 100 000 units sold. The regular sales commission rate would have been paid. The CEO rejected the order because "it was below our costs of $97 per unit." What would operating income have been if the order had been accepted? 2. A supplier offered to manufacture the year's supply of 100 000 plastic housings for $13.50 each. What would be the effect on operating income if Block Company purchased rather than made the housings?' Assume $350 000 of the separable fixed costs assigned to housings would have been avoided if the housings were purchased. 3. The company could have purchased the housings for $13,50 each and used the vacated space for the manufacture of a deluxe version of its drill. Assume that 20 000 deluxe units could have been made (and sold in addition to the 100 000 regular units) at a unit variable cost of $90, exclusive of housings and exclusive of the 10% sales commission. The 20 000 extra plastic housings could also be purchased for $13,50 each. The sales price would have been $130. All the fixed costs pertaining to the plastic housings would have continued, because these costs related primarily to the manufacturing facilities used. What would operating income have been if Block had bought the housings and made and sold the deluxe units? 13