Special Order Pricing Midwest Company manufactures portable radios. Shop Smart, a large retail merchandiser, wants to buy 200,000 radios from Midwest Company for $12 each. The radio would carry Shop Smart’s name and would be sold in its stores.

Midwest Company normally sells 420,000 radios per year at $16 each; its production capacity is 540,000 units per year. Cost information for the radios is as follows:

The $1 variable selling and administrative expenses would not be applicable to the radios ordered by Shop Smart because that is a single large order. Shop Smart has indicated that the company is not interested in signing a contract for less than 200,000 radios. Total fixed costs will not change regardless of whether the Shop Smart order is accepted.
Required:
1. Identify any opportunity costs that Midwest Company should consider when making the decision.
2. Determine whether Midwest Company should accept Shop Smart’s offer.
3. Interpretive Question: What qualitative factors might be relevant to this decision?

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Production costs: Variable production costs Fixed manufacturing overhead ($2,100,000 420,000 units) Selling and administrative expenses: Variable .... Fixed ($420,000 + 420,000 units) $7 5 1 1