Elite Products Inc. manufactures fuel injection systems for high

performance V$8$ engines. The systems can be used on any make of car

by installing the correct software chip for that make. The company is

currently at $80\%$ of capacity manufacturing $30,000$ systems per year. The

systems sell for $$1,200$ each and are sold to independent high

performance retail auto part stores. Elite Products Inc. has been

approached by HighSpeed Auto Inc. a large auto parts chain to provide

them with the fuel injection system. In contract negotiation the chain has

agree to purchase $7,500$ systems which will get Elite Product's production

to full capacity. However, HighSpeed Auto Inc. wants a ten percent

quaintly discount on the additional $7,500$ systems it purchases or it will

not enter into the contract.

The current manufacturing costs for the systems are as follows:

Raw material: $$575/$unit

Direct labor: $$150/$unit

Variable Mfg$.$ OH: $ $80/$unit

Fixed Mfg OH : $$9,000,000/$year

Other costs of the company are as follows:

Variable Selling Exp: $ $6/$unit

Variable G&A Exp: $ $1/$unit

Fixed Selling Exp: $$2,000,000/$year

Fixed G&A Exp: $$1,500,000/$year

Since Elite Products will be increasing production by twenty percent the

following cost will change. Fixed manufacturing overhead will increase by

$$140,000$ per year because of higher electrical usage. Because of a sales

commission break to be paid for any units sold above $30,000$ per year

variable Selling expense will increase by $$2$ per unit for the additional

$7,500$ units only. Raw Material cost will drop to $$517$ per unit for the

additional production only because of a quantity discount from the firm's

vendors on orders over $30,000$ units.