udge Pty Ltd (Tudge) manufactures construction machinery according to customer specifications. The company operated at 75 per cent of practical capacity during the year just ended, with the following results (in thousands): Sales revenue $ 8,000 Less: Sales commissions (10%) 800 Net sales $ 7,200 Expenses: Direct material $ 2,200 Direct labor 2,400 Manufacturing overheadvariable 720 Manufacturing overheadfixed 500 Corporate administrationfixed 400 Total costs $ 6,220 Income before taxes $ 980 Income taxes (25%) 245 Net income $ 735 Tudge, which expects continued operations at 75 per cent of capacity, recently submitted a bid of $52,500 on custom-designed machinery for AAA Building. Tudge used a pricing formula in deriving the bid amount, the formula being based on last years operating results. The formula follows: Estimated direct material $ 9,000 Estimated direct labor 18,000 Estimated total manufacturing overhead at 50% of direct labor (variable overhead maintains a same percentage of direct labor cost as the year just ended) 9,000 Estimated corporate overhead at 10% of direct labor 1,800 Estimated total costs excluding sales commissions $ 37,800 Add 25% income taxes 9,450 Suggested price (with profit) before sales commissions $ 47,250 Suggested total price: $47,250 0.9 to adjust for 10% commission $ 52,500 Required: Marks 1. Calculate the impact the order would have on Tudges profit if the $52,500 bid were accepted by AAA Building. (4) 2. Assume that AAA Building has rejected Tudges bid but has stated it is willing to pay $63,500 for the machinery. Should Tudge manufacture the machinery for the counter-offer of $50,600? Provide full workings to support your conclusion. (4) 3. How would the profit performance in the coming year would be affected if Tudge accepted all of its work at prices similar to AAA Buildings $50,600 counter-offer described in requirement 2?