Pricing decision Refer to the data for Sweditrak Corporation presented in LO 4 Case 5-47. The following additional information is now available.

The production volume budgeted for each product in weeks 47 to 52 is the same as the volume level in week 46. In early December, the company is considering contracting with a French company to produce 400 units of the deluxe model on a four-week trial basis for $200 per unit. Accepting this offer would restrict Sweditrak's own deluxe production to 50 units per week.

REQUIRED

(a) Is it profitable for Sweditrak to accept this offer? What other qualitative factors should Sweditrack also consider in evaluating this offer?

Suppose that Sweditrak is pleased with the quality of the trial ship¬ ment and the French company is willing to commit to produce 400 units of the deluxe model each week for the next three years and charge $200 per unit. Sweditrak expects the domestic demand for its two models to re¬ main stable at 450 units per week for the next three years. During this three-year period, Sweditrak can adjust the capacity of each department to any desired levels. Capacity changes will result in proportional changes in fixed costs.

(b) What are the relevant costs for this long-term decision?

(c) Will it be profitable for Sweditrak to accept the long-term offer?

(LO 2, 3)