Thousand Islands Company produces a variety of electric scooters. Management follows a pricing policy of manufacturing cost plus 60 percent. In response to a request from Northern Cycles, LLC, the following price has been developed for an order of 300 scooters (the smallest scooter Thousand Islands produces):

1. The president of Thousand Islands wants to know if he should allow Mr. Bass to have the scooters for $44,000. Determine the effect on cash profits of accepting Mr. Basss offer.

2. Suppose that Thousand Islands was operating at capacity and could sell the 300 scooters at its regular market. Determine the effect on cash profits of accepting Mr. Basss offer. (Have you made an implicit assumption in your calculations?)

Manufacturing costs Direct materials 10,000 12,000 Direct labor Factory overhead 18,000 Total manufacturing costs 40,000 Mark-up (60%) 000 Selling price S 000 Mr. Bass, the president of Northern Cycles, rejected this price and offered to purchase the 300 scooters at a price of $44,000. The following information is available: Thousand Islands has sufficient excess capacity to produce the scooters. Factory overhead is applied on the basis of direct labor dollars. Budgeted factory overhead is S400,000 for the current year. Of this amount, $100,000 is fixed. of the $18,000 of factory overhead assigned to the Northern Cycles, only $13,500 is driven by the special order, $4,500 is a fixed cost. Selling and administrative expenses are budgeted as follows: Fixed S&A $90,000 per year Variable S&A $20 per unit manufactured and sold