Incremental Analysis. Fan Diego, Inc., manufactures a hand-held electric hair dryer. Sales have increased steadily during recent years and, because of a recently completed expansion program, annual capacity is now 250,000 units. Production and sales during the coming year are forecast at 150,000 units, and standard production costs have been estimated as:

In addition to production costs, Fan Diego incurs fixed selling expenses of 50¢ per unit, and variable warranty repair expenses of 75¢ per unit. Fan Diego currently receives $8.25 per unit from its customers (primarily retail department stores) and expects this price to hold during the coming year.
After making the above projections, Fan Diego received an inquiry concerning the purchase of a large number of units by a discount department store. The inquiry contained two purchase offers:

Question

Incremental Analysis. Fan Diego, Inc., manufactures a hand-held electric hair dryer. Sales have increased steadily during recent years and, because of a recently completed expansion program, annual capacity is now 250,000 units. Production and sales during the coming year are forecast at 150,000 units, and standard production costs have been estimated as:
  
In addition to production costs, Fan Diego incurs fixed selling expenses of 50¢ per unit, and variable warranty repair expenses of 75¢ per unit. Fan Diego currently receives $8.25 per unit from its customers (primarily retail department stores) and expects this price to hold during the coming year.
After making the above projections, Fan Diego received an inquiry concerning the purchase of a large number of units by a discount department store. The inquiry contained two purchase offers:

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The Answer of Incremental Analysis. Fan Diego, Inc., manufactures a hand-held electric hair dryer. Sales have increased steadily during recent years and, because of a recently completed expansion program, annual capacity is now 250,000 units. Production and sales during the coming year are forecast at 150,000 units, and standard production costs have been estimated as:
  
In addition to production costs, Fan Diego incurs fixed selling expenses of 50¢ per unit, and variable warranty repair expenses of 75¢ per unit. Fan Diego currently receives $8.25 per unit from its customers (primarily retail department stores) and expects this price to hold during the coming year.
After making the above projections, Fan Diego received an inquiry concerning the purchase of a large number of units by a discount department store. The inquiry contained two purchase offers: