Childs Play has been approached by the government, which is seeking to buy 150,000 rattles for its day care centers in 2019. The proposed government contract states that the government would payChilds Play a price of$4.25 per rattle. If Childs Play decides to accept this special order, theywould avoid packaging costs for this contract as well as all variable selling and administrative costs.The companys capacity is limited to only 400,000 units. If they accept the government contract, they will need to increase their capacity by renting an additional machine. Refer to page 1 for the companys estimated cost data and additional machine rental cost.

Child's Play Company Child's Play Company makes a plastic rattle for toddlers. The rattle is generally marketed through exclusive retailers located in upscale shopping malls. In late 2018, Diana Suarez, the president of the company, was considering an alternative marketing plan for 2019 that was presented to her by Bill Duffy, the marketing manager. Based on sales from January through September 2018, Diana expected that 2019 sales would amount to 300,000 units. Bill's alternative marketing plan is presented below: 2019 Marketing Plan: "At the present time, we sell the product to retailers for $8.00 per rattle. Retailers generally charge the consumers between $9 and $9.50. If we cut our selling price to retailers to $7.50, I expect that the product will do much better. Their increased markup will give them the incentive to display our product more prominently and to promote it more vigorously to customers. We should support this strategy by supplying more promotional materials to retailers, which I expect would be an increase of $4,600 in Advertising and Promotion costs. Based on the price cut and the increase in advertising and promotion, I expect that we will be able to boost our sales volume by 20 percent to 360,000 units in 2019." Diana received cost data from the company's CFO, Don Capp. Don expects that the cost data below are also reliable estimates for 2019 for a production volume up to 400,000 units. Beyond 400,000 units, the company would have to rent additional machines (with a capacity of 100,000 units each), which would increase fixed manufacturing overhead costs by $50,000 per machine. 2018 Cost Data Manufacturing Costs for rattles (based on production volume of 300,000 units): Direct Materials Direct Labor Packaging Variable Manufacturing Overhead $1.20 per unit Fixed Manufacturing Overhead $540,000 $0.80 per unit $10 per hour (each worker can make 20 units in 1 hour) $0.75 per unit Selling and Administrative Costs for rattles (based on sales volume of 300,000 units): Sales Commissions Shipping Costs Advertising and Promotion (fixed) $180,000 Fixed Selling and Admin Expenses $270,000 $0.80 per unit $0.50 per unit