Influences on decisions. (CMA) Windsor Headlights Ltd. sells its products into a very com- petitive North American market. Sales have been steady for about three years and the company's capacity has been 60,000 machine-hours per month. This is 60% of its practical capacity. There are two contracts Windsor's top management team is considering with the intent to increase sales. The first contract is with Mitsubishi, a Japanese manufacturer. The contract is going to be awarded to the lowest bidder who meets the contract specifications. Mitsubishi requires 100,000 units of Y-95 headlights per month and Windsor currently supplies this model to one of its North American customers. The North American contract is for two years at $3.25 per unit. Not many North American suppliers have been awarded contracts with Japanese companies. The table illustrates various potential bid prices and the probabi- lity the contract will be awarded at each bid price:

The second contract is with Chrysler in the U.S., which is currently a very important customer with Windsor. Chrysler has offered a contract to purchase 800,000 units of model Y-95 headlights to be delivered in 5 months. Windsor, however, must agree to discount its price of CDN $3.60 per unit by 30%. Chrysler normally deals in very small quantities on a monthly basis with Windsor and this is the first time it has ordered the Y-95 headlight from Windsor.
The standard manufacturing cost of one unit of model Y-95 is:

The overhead rate is based on the current capacity of 60,000 machine-hours per month and 80% of this rate represents fixed costs.
REQUIRED 1. Based on your quantitative analysis of relevant costs and revenue, which bid price for the Mitsubishi contract would have the highest favourable effect on Windsor’s operating income?
2. What other factors should influence Windsor’s decision on the bid price for the Mitsubishi contract?
3. What factors should influence Windsor’s decision on the bid price for the Chrysler contract?
4. Assume Windsor’s practical capacity increases to 80,000 machine-hours per month throughout the next 12 months. If all other production data remain unchanged, calculate the total standard manufacturing cost per unit of model Y-95 headlights for next year.LO1

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Probability of Acceptance Bid Price per Unit, CDN $ 100% $2.00 80% 2.50 50% 3.00 25% 3.25 0% 3.50