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2. Reggies sells office chairs to their regular customers for $200. The chairs cost is as follows: DM $50 per chair, DL $25 per chair, Var MOH $25 per chair, and Fix MOH $40 per chair. They normally sell 5,000 chairs in a month, and they have sufficient capacity to make and sell another 2,000. Gina, who is not a regular customer, talks to Reggie about buying 1,000 chairs but at a price of only $105 per chair. How much would operating income increase or decrease (-) if Reggie accepted the special order (assuming existing sales unaffected)?

3. Olivia's has 3 separate branches in its business. The Mountain West branch has been losing money according the following report:

Sales 1,000

-variable costs (600)

=Contribution Margin 400

-Fixed expenses (500)

Operating Income (100)

Olivia is considering shutting down the Mountain West branch. If she did that, she knows that: (1) all variable costs would be avoidable, and (2) of the fixed costs, $125 of them are common (or allocated fixed costs). Olivia also knows that, if the Mountain West Branch were shut down, the contribution margin of the West Coast Branch would increase by $100 due to Mountain West customers switching to West Coast. What would be the effect if Olivia shut down the Mountain West Branch? (better off is a positive number, worse off is a negative number)

4. Marshall has a car wash service. For each car, it costs Marshall $3.00 but Marshall is able to sell the service for $6 per car. Marshall services 1,000 car per month. Marshall is considering adding a hand-wax/dry feature to the car wash. If Marshall did that, he would need to spend another $2.50 per car on labor and materials, but he would then be able to charge $9 for the service per car. If Marshall adds the hand-wax/dry feature, how much better or worse off will he be (assuming the same quantity of 1,000 cars)?

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