Stardom Inc. cans peaches for sale to food distributors. All costs are classified as either manufacturing or marketing. Stardom prepares monthly budgets. The March 2015 budgeted absorption-costing statement of comprehensive income is as follows:

Revenue (1,000 crates × $100 a crate) ................................. $100,000

Cost of goods sold .......................................................... 60,000

Gross margin ................................................................. 40,000

Marketing costs .............................................................. 30,000

Operating income ......................................................... $ 10,000

Normal markup percentage: $40,000 ÷ $60,000 = 66.7% of absorption cost

Monthly costs are classified as fixed or variable (with respect to the number of crates produced for manufacturing costs and with respect to the number of crates sold for marketing costs):

Fixed Variable

Manufacturing ................ $20,000 .......... $40,000

Marketing ....................... 16,000 ............ 14,000

Stardom has the capacity to can 1,500 crates per month. The relevant range in which monthly fixed manufacturing costs will be "fixed" is from 500 to 1,500 crates per month.

Required

1. Calculate the markup percentage based on total variable costs.

2. Assume that a new customer approaches Stardom to buy 200 crates at $55 per crate for cash. The customer does not require any marketing effort. Additional manufacturing costs of $4,000 (for special packaging) will be required. Stardom believes that this is a one-time-only special order because the customer is discontinuing business in six weeks' time. Stardom is reluctant to accept this 200-crate special order because the $55-per-crate price is below the $60-per-crate absorption cost. Do you agree with this reasoning? Explain.

3. Assume that the new customer decides to remain in business. How would this longevity affect your willingness to accept the $55-per-crate offer? Explain.