Schweizer Products produces smart thermostats for home heating, ventilation, and air-conditioning (HVAC) systems and markets them to vendors who sell them under their own label. The cost of one of its thermostats follows.

French Road DIY Stores, a chain of home improvement stores, has asked Schweizer to supply it with 3,000 thermostats for a special promotion French Road is planning at one of its larger outlets. French Road has offered to pay Schweizer a unit price of $60 per thermostat. The regular selling price is $90. The special order would require some modification to the basic model. These modifications would add $4.00 per unit in material cost, $2.00 per unit in labor cost, and $0.50 in variable overhead cost. Although Schweizer has the capacity to produce the 3,000 units without affecting its regular production of 45,000 units, a one-time rental of special testing equipment to meet French Road’s requirements would be needed. The equipment rental would be $9,000 and would allow Schweizer to test up to 6,000 units. 

Required

a. Prepare a schedule to show the impact of filling the French Road order on Schweizer’s profits for the year.

b. Would you recommend that Schweizer accept the order?

c. Considering only profit, determine the minimum quantity of thermostats in the special order that would make it profitable.

Transcribed Image Text:

Materials. Labor... Variable overhead. Fixed overhead ($405,000 per year; 45,000 units per year) Total.... $27.00 18.00 7.50 9.00 $61.50