Midwest company manufactures portable radios shop smart a

Reference no: EM13603917

Midwest Company manufactures portable radios. Shop smart, a large retail merchandiser, wants to buy 200,000 radios from Midwest for $12 each. The radio would carry Shop smart's name and would be sold in its stores.Midwest normally sells 420,000 radios per year at $16 each; its production capacity is 540,000 units per year. Cost information for the radios is as follows:

Production costs:
Variable p.c. = $7
Fixed manufacturing overhead ($2,100,000 / 420,000 units) = $5

Selling & administrative costs:
Variable = $1
Fixed ($420,000 / 420,000 units) = $1

The $1 variable selling and administrative expenses would not be applicable to the radios ordered by Shop smart because that is a single large order. Shop smart has indicated that the company is not interested in signing a contract for less than 200,000 radios. Total fixed costs will not change regardless of whether the Shop smart order is accepted.

Reference no: EM13603917

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