You are the controller for Tippets Watch Company, a manufacturer of high-quality watches. The company has excess watches, which it has not been able to market through its own distribution outlets.

To utilize the excess capacity, the president is negotiating with a large department store chain to sell Tippets watches. He has asked you to estimate the minimum selling price below which Tippets should not accept an order from the retail chain. Cost information per watch is:

Direct materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $38

Direct labor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Manufacturing overhead:

Variable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Fixed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Selling and administrative expenses:

Variable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

Fixed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

The fixed costs are the same whether or not the order is accepted.

1. What is the minimum selling price the company should accept based solely on cost information (not considering qualitative factors)?

2. Assume that the president agrees to sell 12,000 watches at a price of $89 per watch. What would be the expected increase in profit?