Elmo Short manufactures pine tables which are distributed through a retail chain. Each table is sold for $100 and requires 2 hours of labor, 1 hour of saw time and $30 of materials. Due to shop size limitations, Elmo is limited to two carpenters who are paid $400 each for a forty-hour week. The variable cost of saw operation is $20 per hour.

Elmo received the following letter from Bart Slick, purchasing agent for Gross Furniture Limited.

Dear Mr. Short: We are interested in purchasing your output of tables provided that an alteration can be made to the current model. This alteration would require 1 labor hour, 1/4 hour of saw time, and $6 of materials. This will increase your costs by $21 per unit. Since your current mark-up over cost is 3/7 we will pay 100 + 21 + 21 (3/7) = $130 for the new table. We feel that this will provide you with reasonable profit on your operations. Sincerely, Bark Slick

Elmo Short has asked you to verify Slick's calculations and to draft a response to the proposal.

If you don't agree with Slick, and you decide to make a counter offer, how much would you quote?