The following monthly financial data are for RadioCom Inc., a maker of handheld VHF radios. RadioCom produces and sells 5,000 radios each month to regular customers.

RadioCom received an offer from the Coast Guard Auxiliary to purchase 1,000 radios this coming month for \($75\) per unit. RadioCom can produce up to 7,000 radios a month, so the special order would not affect regular customer sales. Variable costs per radio will remain at \($60.\) This special order will have no effect on monthly fixed costs.

Required

a. Using the differential analysis format presented in Table 7.9, determine whether RadioCom would be better off rejecting the special order (Alternative 1) or accepting the special order (Alternative 2).

b. Summarize the result of accepting the special order using the format presented in Table 7.10.

Table 7.9

Table 7.10

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Sales revenue Variable costs Per Unit $100 Total Monthly Data at 5,000 Radios $500,000 60 300,000 Contribution margin $ 40 Fixed costs Profit $200,000 135,000 $ 65,000