1. Special Order. Suppose the Petit Company has approached your company, Multiproduct Corp., with a special order. Petit Company wishes to purchase 57,000 plastic political decals for car windows and offers to pay you $0.89 per decal. Your company has enough capacity to handle the special order and its total production cost is $0.59 per decal, as follows:
| Variable costs: |
| Direct materials |
$0.14 |
| Direct labor |
$0.09 |
| Variable overhead |
$0.10 |
| Fixed overhead |
$0.26 |
| Total cost |
$0.59 |
What is the increase or decrease in total operating income from the order if Multi-product Corp. accepts the special order. Enter an increase as a positive number and a decrease as a negative number.
2. Discontinuing a Product Line.Suppose Multi-product Corp. is considering discontinuing one of its product lines. During the past year, the product line's income statement showed the following:
| Sales revenue |
$7,351,000 |
| Less: cost of goods sold |
$6,500,000 |
| Gross profit |
$851,000 |
| Less: operating expenses |
$1,600,000 |
| Operating income (loss) |
$-749,000 |
Fixed manufacturing overhead costs account for 10% of the cost of goods, while only 30% of the operating expenses are fixed. Since the product line is just one of Multi-product Corp.'s products only $760,000 of the product's fixed expenses (the majority of which is advertising) will be eliminated if the product line is discontinued. If the company decides to discontinue the product line, how much will the company's operating income increase or decrease? Enter an increase as a positive number and a decrease as a negative number.