The Phone Company has the following costs of producing and selling a cell phone when it produces and sells 100,000 cell phones per month: Per unit manufacturing cost Direct materials $60.00 Direct labor 10.00 Variable manufacturing overhead cost 35.00 Fixed manufacturing overhead cost 20.00 Per unit selling cost Variable 25.00 Fixed 10.00 Note that 100,000 is the denominator used to calculate fixed costs per unit. Total fixed costs do not change regardless of production/sales level. The selling price of a cell phone is $250, unless otherwise stated in the questions below. Each situation below is independent of the other situations. That is, when you answer one question, assume that the situations described in other questions have not occurred. When you are considering opportunities for increased sales, assume that Phone Company has enough manufacturing capacity to make these sales without incurring additional fixed costs (i.e., it has excess capacity).

The Phone Company is considering entering into a contract to provide SP Company with 8,000 cell phones per month, in addition to its existing business. The contract would require SP Company to pay Phone Company for total manufacturing costs for the 8,000 cell phones plus a profit of $750,000 per month. The Phone Company would incur no variable selling costs related to this contract. How much would Phone Companys monthly operating income increase or decrease as a result of taking this contract? Assume that if Phone Company takes this contract, it does not change the fixed overhead allocation rate (that is, $20/unit) that it set at the beginning of the year.

4. The Phone Company has the opportunity to provide an organization with a one-time special order of 20,000 cell phones, in addition to its existing business. The only variable selling cost associated with this order would be shipping costs of $10.00 per cell phone, and fixed selling costs for this order (in addition to Phone Companys existing fixed costs) would be $200,000. What selling price per unit would be required to generate $600,000 in incremental operating income from this order?