Comfort Pillows makes “ultra-luxury” goose-down pillows encased in 500-thread count fabric. In recent years, Comfort Pillows has operated at only 60% of its available capacity. Spooked by market volatility, many persons in Comfort Pillows’ target market have scaled back on ostentatious purchases. As a result, the firm currently is producing only 12,000 pillows per month rather than the 20,000 pillows it could produce. Comfort Pillows makes its pillows using labor paid on an hourly basis. While machine capacity is difficult to adjust in the short term, it is easy to adjust the amount of labor.
Seeking to make gainful use of its machine capacity, Comfort Pillows is considering an order from a high-end department store. The department store wants Comfort to make 5,000 pillows. The department store will sell the pillows under its own brand name. Comfort Pillows has asked you to analyze its accounts and prepare a price estimate.
The firm plans to arrive at its selling price by adding a 25% markup to the controllable costs associated with accepting the order. The following data are available:

Item Cost
Fabric $2.50 per pillow
Fill $18.00 per pillow
Industrial sewing machines 1/2 hour per pillow; the long-term lease cost is
$100,000 per year; Comfort Pillows has enough sewing
machines to produce 20,000 pillows per month.
Labor 1/2 hour per pillow; labor costs $12 per hour.
Plastic wrap & other packing $0.50 per pillow
Cartoning & crating $10.00 per 25 pillows.
Transportation $1,500 for a truckload of 2,500 pillows
Purchasing & manufacturing $32,500 for 12,000 pillows per month. Comfort
support expects this cost to increase by $15,000 per month
(to $47,500 per month) if volume increases to
15,000 or more pillows per month.
Advertising brochures $150,000 per year
Office expenses $300,000 per year. The current office staff can support
a volume of 20,000 pillows per month.
Sales & customer support $200,000 per year for 250 customers. The department
store is not a regular customer. Comfort expects
to spend a total of $1,000 in arranging logistics
and incorporating the department store into its
regular client list.

Required:
a. Classify each of the cost items as being controllable (C) or noncontrollable (NC) for pricing the department store’s order. Next, calculate the price per pillow, assuming Comfort Pillows adds a 25% markup to the controllable costs associated with accepting the order.
b. What is the price per pillow if the department store’s order is for 4,000 pillows?