Clean-it Company produces cleaning kits for shotguns. The production capacity available will enable the firm to produce 500,000 kits annually. A projected income statement for next year shows Sales (460,000 kits) $4,600,000 Costs of goods sold 2,960,000 Gross profit 1,640,000 Selling and administrative expenses 1,250,000 Net income $ 390,000

Fixed manufacturing overhead costs included in the cost of goods sold are $ 1,120,000. A 10% sales commission is paid to sales representatives for each kit sold. The purchasing department of a large discount chain has offered to purchase 30,000 kits at $6 each. The Clean-it Company sales managers initial response is to refuse the offer because he concludes that the $6 price is below the firms average cost 2,960,000/460,000. The sales commission would not be paid on the special order. Required: A. Should the special offer be accepted? What would be the impact on net income? B. Assume that the offer was for 50,000 kits. Should it be accepted? Show your calculations. C. Ignore part B. What is the lowest price the firm could accept if it wants to earn annual net income of $480,000?