Vermont Teddy Bear Company Makes a Special Teddy Bear Called

Vermont Teddy Bear Company makes a special teddy bear called a Lovey Buddy. The production of each consists of $15 variable costs and $10 of fixed costs, and normally sells for $70. A children's hospital would like to purchase 7,000 units of the Lovey Buddy bear for $20 per bear. The company currently has capacity to produce the special order without incurring additional fixed costs.
a. Should Vermont Teddy Bear Company accept the request for this special order? Show computations to support decision.
b. The children's hospital has inquired about customizing the Lovey Buddy bears for its patients. Currently, the company does not have the necessary equipment to customize the bears, but is willing to consider purchasing an embroidering machine should it prove cost effective. Research indicates that an embroidering machine will cost $8,500. The company believes that if it charges an additional $2 per Lovey Buddy, that it could accept the special order and customize each of the bears ordered. Can the company do this and still generate operating income on the special order?