Mission Electronics manufactures and sells basic DVD players for sale under various generic store brand names. The cost of one of their models follows: Materials $ 18.70 Labor 12.70 Variable overhead 5.70 Fixed overhead ($3,061,900 per year; 457,000 units per year) 6.70 Total $ 43.80
Pacific Cash & Carry, a chain of low-price electronic sales and rental outlets, has asked Mission to supply them with 26,000 players for a special promotion Pacific is planning. Pacific has offered to pay Mission a unit price of $47 per DVD player. The regular selling price is $67. The special order would require some modification to the basic model. These modifications would add $4.70 per unit in material cost, $2.20 per unit in labor cost, and $1.20 in variable overhead cost. Although Mission has the capacity to produce the 26,000 units without affecting its regular production of 457,000 units, a one-time rental of special testing equipment to meet Pacific’s requirements would be needed. The equipment rental would be $64,800 and would allow Mission to test up to 57,000 units. Required:
a. Prepare a schedule to show the impact of filling the Pacific order on Mission’s profits for the year.(Enter your answers in thousands of dollars. Round your answers to 1 decimal place.)
b. From an operating profit perspective for the current year, should Mission accept the order? No yes
c. What is the minimum quantity of DVD players in the special order that would make it profitable?