HiPerformance Engine, Inc. manufactures and sells all sizes and models of high performance machine engines and related products.

Recently, they entered negotiations with Landscaper Corporation for the sale of 300 small but highly efficient electric lawnmower engines. Normally, HiPerformance Engines price for these 300 engines would be $72,000, which includes all production costs, including fixed overhead of $4,5000, and its normal mark-up of 60% above production costs. Their analysis of profit from sale is:

Selling price		$72,000
Production costs:
Direct material	12,000
Direct labor	15,000
Manufacturing overhead	18,000	45,000
Profit from sale		$27,000

Of course, because of its large order size of 300 engines, Landscaper Corporations management rejected the $72,000 price and is negotiating for a reduced price of $60,000 for the 300 engines with promises of future significant orders, if the arrangement goes well.

Additional relevant cost information for HiPerformance includes:

25% of factory overhead is fixed and 75% is variable.

Annual budgeted selling and administrative expenses (SG&A) are: (a) $90,000 of fixed SG&A and (b) variable SG&A of $20 per engine produced and sold.

HiPerformance Engine has sufficient capacity to fulfill Landscaper, Incs 300 engine special order. Therefore, rather than lose the opportunity, HiPerformances management wants to accept Landscapers counter offer. However, before doing so, they need you to address their issues indicated below.

Required

Determine the net benefit or loss associated with HiPerformance Engine accepting Landscaper Corporations $60,000 counter-offer.

Assuming HiPerformance is operating at full production capacity. What is the implications of accepting Landscaper Corporations counter-offer, i.e. what is the financial implication of selling to Landscaper instead of producing and selling 300 engines at their to their regular customers? Consider both the opportunity cost and the effect on profits.

Before making a final decision, what qualitative factors should HiPerformance Engines management consider?