Response to the following problem:
Whiskers Inc. has an annual plant capacity of 100,000 units, and current production is 75,000 units. Monthly fixed costs are $375,000, and variable costs are $26 per unit. The present selling price is $40 per unit. On July 27, 2012, the company received an offer from Sandstone Company for 17,500 units of the product at $30 each. Sandstone Company will market the units in a foreign country under its own brand name. The additional business is not expected to affect the domestic selling price or quantity of sales of Whiskers Inc.
a. Prepare a differential analysis report for the proposed sale to Sandstone Company.
b. Briefly explain the reason why accepting this additional business will increase operating income.
c. What is the minimum price per unit that would produce a contribution margin?