Special Order Decision: Operating with Idle Capacity. The following monthly financial data are for RadioCom, Inc., a maker of handheld VHF radios. RadioCom produces and sells 5,000 radios each month to regular customers.

RadioCom received an offer from the Coast Guard Auxiliary to purchase 1,000 radios next month for $75 per unit. RadioCom can produce up to 7,000 radios a month, so the special order would not affect regular customer sales. Variable costs per radio will remain at $60. This special order will have no effect on monthly fixed costs.

Required:

Using the differential analysis format presented in Figure 7.13 "Special Order Differential Analysis for Tonys T-Shirts", determine whether RadioCom would be better off rejecting the special order (Alternative 1) or accepting the special order (Alternative 2).

Summarize the result of accepting the special order using the format presented in Figure 7.14 "Summary of Differential Analysis for Tonys T-Shirts".

Total Monthly Data at 5,000 Radios $500,000 300,000 $200,000 135,000 $ 65,000 Per Unit $100 Sales revenue Variable costs Contribution margin Fixed costs Profit 60 s 40