Mission Electronics manufactures and sells basic DVD players under various generic store
brand names. The cost of one of their models follows:
Materials
Labor
Variable overhead
Fixed overhead ($2,700,000 per year; 450,000 units per year)..
Total
$18.00
12.00
5.00
6.00
$41.00
Pacific Cash & Carry, a chain of low-price electronic sales and rental outlets, has asked Mis-
sion to supply them with 30,000 players for a special promotion Pacific is planning. Pacific has
offered to pay Mission a unit price of $42 per DVD player. The regular selling price is $60.
The special order would require some modification to the basic model. These modifications
would add $4.00 per unit in material cost, $1.50 per unit in labor cost, and $0.50 in variable
overhead cost. Although Mission has the capacity to produce the 30,000 units without affect-
ing its regular production of 450,000 units, a one-time rental of special testing equipment to
meet Pacific's requirements would be needed. The equipment rental would be $45,000 and
would allow Mission to test up to 50,000 units.
Required
a. Prepare a schedule to show the impact of filling the Pacific order on Mission's profits for
the year.
b. Would you recommend that Mission accept the order?
c. Considering only profit, what is the minimum quantity of DVD players in the special
order that would make it profitable?
