The Cloud Burst Sprinkler Company of Benicia, California has been manufacturing

and selling a water efficient sprinkler exclusively to Home Depot for the last two

years. Although there is not a binding contract that gives Home Depot exclusive

rights to buy and stock the sprinkler in their network of locations, Cloud Burst has

placed a great deal of importance on keeping Home Depot locations across the

country and Canada fully stocked with their water efficient sprinkler.

ACE Hardware has approached Cloudburst indicating they would like to stock the

water efficient sprinkler in their $4,192$ stores across the United States. The initial

proposal submitted by ACE is to purchase $50,304$ sprinklers which will result in a

dozen sprinklers stocked in every store.

The proposal received from ACE will NOT affect fixed costs, however, ACE has

requested a special onetime quantity wholesale discount price of $$5\mathrm{.}80$ per

sprinkler

Cloud Burst Sprinkler Company achieved the following results operating at $47\%$

capacity and selling $122,400$ sprinklers exclusively to Home Depot:

Sales to Home Depot $$826,200$

Cost of Goods Sold $532,440$

Gross Profit $293,760$

Operating Expenses:

Variable Portion $24,480$

Fixed Portion $115,000$

Total Operating Expenses $139,480$

Net Income $$154,280$

Cost of goods sold is $100\%$ variable.

Operating expenses are both variable and fixed as shown above.

Instructions:

$($a$)$ Prepare an incremental analysis for the ACE Hardware proposal.

$($b$)$ Should Cloud Burst Sprinkler Company accept the ACE Hardware proposal?

$($c$)$ What $$Qualitative$$ Factors should the Cloud Burst Sprinkler Company think

about and consider in making a decision to accept the ACE Hardware proposal?