Schmidt Company made 100,000 electric drills in batches of 1,000 units each during the prior accounting period. Normally, Schmidt markets its products through a variety of hardware stores. The following is the summarized cost to produce electric drills:
Materials cost ($20.00 per unit × 100,000).............................$2,000,000
Labor cost ($12.00 per unit × 100,000) .................................1,200,000
Manufacturing supplies ($1.00 × 100,000) ...............................100,000
Batch-level costs (100 batches at $4,000 per batch) .....................400,000
Product-level costs............................................................300,000
Facility-level costs............................................................360,000
Total costs..................................................................$4,360,000
Cost per unit = $4,360,000 ÷ 100,000 = $43.60
Required
a. Bypassing Schmidt's regular distribution channel, Vestavia's Home Maintenance Company has offered to buy a batch of 500 electric drills for $39 each directly from Schmidt. Schmidt's normal selling price is $54 per unit. Based on the preceding quantitative data, should Schmidt accept the special order? Support your answer with appropriate computations.
b. Would your answer to Requirement a change if Vestavia's offered to buy a batch of 1,000 electric drills for $39 each? Support your answer with appropriate computations.
c. Describe the qualitative factors that Schmidt should consider before accepting a special order to sell electric drills to Vestavia's.