The Alfa Specialty Engineering Company (SPEC) is opening for business. The shop sells various types of unique hydraulic system replacement parts.

A system engineering firm has offered to buy 1,500 specialty items for $10,000.

Fixed costs for one month = $4,000

SPEC has priced the items at $8.00 each.

Variable cost per item = $6.00. Questions:

a. Calculate SPECs operating breakeven point.

b. Calculate SPECs EBIT on the order.

c. If SPEC renegotiates the contract at a price of $ 10.00 per item, what will the EBIT be?

d. If the systems engineering firm refuses to pay more than $ 8.00 per unit but is willing to negotiate quantity, what quantity of items will result in an EBIT of $ 4,000?