The Talbot Company makes a single product called a Wheel. The company has the capacity to produce 40,000 Wheels per year. Per unit costs to produce and sell one Wheel at that activity level are:

Direct materials	$20
Direct labor	$10
Variable manufacturing overhead	$5
Fixed manufacturing overhead	$7
Variable selling expense	$8
Fixed selling expense	$2

The regular selling price for one Wheel is $60. A special order has been received at Talbot from the Fairview Company to purchase 8,000 Wheel next year at 15% off the regular selling price. If this special order were accepted, the variable selling expense would be reduced by 25%. However, Talbot would have to purchase a specialized machine to engrave the Fairview name on each Wheel in the special order. This machine would cost $120,000 and it would have no use after the special order was filled. The total fixed cost, both manufacturing and selling, are constant within the relevant range of 30,000 to 40,000 Wheels per year. Assume direct labor is variable cost.

If Talbot can expect to sell 32,000 Wheels next year through regular channels, what is minimum price it should accept for the special order?

$50.00

$51.50

$42.50

$41.00

If Talbot can expect to sell 32,000 Wheels next year through regular channels and the special order is accepted at 15% off the regular selling price, the effect on net operating income next year due to accepting this order would be a:

$52,000 increase

$80,000 increase

$24,000 decrease

$68,000 increase

If Talbot could sell 37,000 Wheels next year through regular channels and the special order is accepted for 15% off the regular selling price, the effect on net operating income next year due to accepting this order would be a:

$17,000 decrease

$17,000 increase

$19,160 decrease

$19,160 increase