Baldwin Bicycle is being set up as a contract manufacturer of bicycles with normal capacity 100,000 units. Hi-Valu has offered a long-term contract to procure Challenger bike on the following terms:

1. Hi-Valu will reimburse one time design cost of 10,000. Baldwin shall not use this design for orders from other companies. However, it can make slight design changes/cosmetic changes so that other bicycle looks different from Challenger.
2. Of the normal capacity of 100,000 units per year (single shift basis), a minimum of 50% of the capacity shall be reserved for Hi-Valu. The rest can be utilised for other orders.
3. Baldwin shall allocate all overheads using normal capacity.
4. In case of any production constraints, Hi-Valu order shall be given priority.
5. Hi-Valu will offer a price that would cover 25% mark-up on the full cost of Challenger for first 50,000 bikes. However, it may offer a lower price for any quantity above 50,000 bikes.

The cost structure of producing Challenger using 100,000 capacity is expected to be as follows:

1. Direct material = 3980 per unit
2. Direct labour = 1960 per unit
3. Manufacturing overheads = 245,000,000 (40% variable)
4. Interest and other administrative overheads = 65,000,000 (all fixe.

1. Compute the selling price per unit for first 50,000 bikes to be sold to Hi-Valu.
2. At the above price (as computed in 1 above), what is the break-even sales quantity of Challenger?
3. Another company offers one-time order of 20,000 bikes. This offer would require Baldwin to incur one-time additional cost of 20,000 (design and inventory carrying costs). There will not be any other change in the cost structure. Accepting this offer will not affect the contractual arrangements with Hi-Valu. What is the minimum selling price per bike at which this one-time order be accepted?