. The Dayton Corporation makes Christmas nutcrackers and has an annual plant capacity of
2,400 product units. Its predicted operating results for the year are:
Production and sales of 2,000 units, total sales $180,000
Manufacturing costs
Fixed (total) 60,000
Variable (per unit) 26
Selling and administrative expenses
Fixed (total) 30,000
Variable (per unit) 10
Compute the following, ignoring income taxes:
a.) If the company accepts a special order for 300 units at a selling price of $40.00 each, how
would the total predicted net income for the year be affected, assuming no effect on
regular sales at regular prices?
b.) Compute the expected annual net income (with no special orders) if plant capacity can be
doubled by adding additional facilities at a cost of $500,000. Assume that these facilities
have an estimated life of five years with no residual scrap value, and that the current unit
selling price can be maintained for all sales. Total sales are expected to equal the new
plant capacity each year. No changes are expected in variable costs per unit or in total
fixed costs except for depreciation, $100,000 per year.