Dawson Company produces and sells 80,000 boxes of specialty foods each year.The company has computed the following annual cost.
Variable production costs= $400,000
Fixed production costs 480,00
Variable selling costs= 320,000
Fixed selling and administrative costs= 200,000
Total costs= 1,400,000
Dawson normally charges $25 per box. A new distributor has offered to purchase 8,000 boxes at a special price of $22 per box. Dawson will incur additional packaging cost of $1 per box to complete this order.
(A) Suppose Dawson has a surplus capacity to produce 8,000 more boxes. What will be the effect on Dawson's income if it accepts this order?
(B) Suppose that instead of having a surplus capacity to produce 8,000 more boxes, Dawson can only produce 3,000 more boxes. What will be the effect on Dawson's income if it accepts the new order for 8,000 boxes?