The order includes 4,000 of the multi-alarm clocks.

The company has therefore investigated the possibility of having another company make the clocks for them. The clocks were bid for the Kmart order based on an estimated $5.94 cost to manufacture:

Circuit board, 1 each @ $1.40$1.40Plastic case, 1 each @ $0.600.60Alarms, 4 @ $0.11 each0.44Labor, 15 minutes @ $12/hour3.00Overhead, $2.00 per labor hour0.50

MiniTek could purchase clocks to fill the Kmart order for $10.00 from Trans-Tech Asia, a Korean manufacturer with a very good quality record. Trans-Tech has offered to reduce the price to $8.00 after MiniTek has been a customer for 6 months, placing an order of at least 1,000 units per month. If MiniTek becomes a "preferred customer" by purchasing 16,000 units per year, the price would be reduced still further to $4.50.

Omega Products, a local manufacturer, has also offered to make clocks for MiniTek. They have offered to sell 4,000 clocks for $5.00 each. However, Omega Products has been in business for only 6 months. They have experienced significant turnover in their labor force, and the local press has reported that the owners may face tax evasion charges soon. The owner of Omega Products is an electronic engineer, however, and the quality of the clocks is likely to be good.

If MiniTek decides to purchase the clocks from either Trans-Tech or Omega, all the costs to manufacture could be avoided, except a total of $1,000 in overhead costs for machine depreciation. The machinery is fairly new, and has no alternate use.

(a1)

Calculate profit under each of the alternatives if the clocks are to be sold for $15.00 each to Kmart?