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1. Jed Corporation manufactures recreational equipment. Frey Corporation has approached Jed with a special order for 30,000 soft balls. Instead of being packaged separately, the balls are to be bulk packed in boxes containing 500 balls each. Frey is willing to pay $2.45 per ball. Jeds Accounting Department knows that annual expected production is 400,000 balls. It also knows that the current years production is 410,000 balls and that the maximum production capacity is 450,000 balls. The following additional information is available.

Standard unit cost data for 400,000 balls:

Direct materials $ .90

Direct labor .60

Manufacturing overhead

Variable .50

Fixed ($100,000/400,000) .25

Packaging per unit .30

Advertising ($60,000/400,000) .15

Other fixed selling and administrative

expenses ($120,000/400,000) .30

Product unit cost $3.00

Unit selling price $4.00

Total estimated bulk packaging costs

for special order (30,000 balls,

500 per box) $2,500

1. Determine the incremental (relevant) costs and revenues of the decision to accept or not accept the special order, and create an incremental analysis proving the result.
2. Assuming Jed does accept the order, how much will operating income increase (decrease)?
3. Assuming Jed wants a $3,000 profit, what is the minimum price it should accept for each ball (round to nearest cent)?

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