Vortec Medical Probe This is a condensed version of the example appearing in your text (Chapter 1). Vortec Inc. manufactures a single product, a medical probe. Vortec sells the probes to wholesalers, who then market them to physicians. Vortec has two divisions. The marketing division is responsible for selling the probes to wholesalers; the manufacturing division is responsible for producing the probes. The marketing division is rewarded on the basis of sales revenue. The manufacturing division is evaluated and rewarded on the basis of the average unit cost of making the probes. The plants current volume is about 100,000 probes per month. Last months income statement is as follows: Vortec Manufacturing Income Statement Last Month Sales (97,000 units @ $5.00) $485,000 Cost of Sales (97,000 units @ $4.50) 436,500 Gross Margin $ 48,500 Less: Administrative Expenses 26,000 Net Income before Taxes $ 22,500 Medsupplies is one of Vortecs best customers. Every month Vortec sells 10, 000 probes to Medsupplies at $5 per unit. Last week, Medsupplies asked the marketing division of Vortec to increase its monthly shipment to 15,000 units, provided that Vortec would sell the additional 5,000 units at $4 each. Medsupplies would continue to pay $5 for the original 10,000 units. Medsupplies argued that because this wold be extra business for Vortec, no overhead should be charged on the additional 5000 units. In this case, a $4 price should be adequate. Vortecs finance department believes that the $4 price is too low because it would not cover average costs of $4.46 per unit, calculated as follows: Average Cost 100,000 units 105,000 units per month per month . Direct labor and materials $3.00 $3.00 Other factor costs 1.50 1.46 Average total costs $4.50 $4.46 Should Vortec accept the Medsupplies offer?

In the example used in this week's reading, Vortec Medical Probe has received a special offer to ship an additional 2000 probes to one of its existing clients at a reduced price. The analysis in the reading explains the decision of whether or not to accept the order given the incentives of two different divisions of the company as well as the impact on the company shareholders. Prepare an analysis that provides a solution to the question: Should Vortec accept the special order or not? Include in your decision an explanation of how you are going to deal with the unknowns cited in the text. Additionally, your analysis should address what Vortec needs to do to design incentives for the two divisions that would more closely align with shareholders desires for profit maximization. Show your work for any calculations.