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Luke Corporation produces a variety of products, each within their own division. Last year, the managers at Luke developed and began marketing a new chewing gum, Bubbs, to sell in vending machines. The product, which sells for $5.55 per case, has not had the market success that managers expected and the company is considering dropping Bubbs.

The product-line income statement for the past 12 months follows:

Revenue $14,691,150

Costs

Manufacturing costs $14,443,395

Allocated corporate costs (@5%) 734,558 15,177,953

Product-line margin $(486,803)

Allowance for tax (@20%) 97,360

Product-line profit (loss) $(389,443)

All products at Luke receive an allocation of corporate overhead costs, which is computed as 5 percent of product revenue. The 5 percent rate is computed based on the most recent year's corporate cost as a percentage of revenue. Data on corporate costs and revenues for the past two years follow:

Corporate Revenue Corporate Overhead Costs

Most recent year $112,750,000 $5,637,500

Previous year 76,800,000 4,875,360

Roy O. Andre, the product manager for Bubbs, is concerned about whether the product will be dropped by the company and has employed you as a financial consultant to help with some analysis. In addition to the information given, Mr. Andre provides you with the following data on product costs for Bubbs:

Month Cases Production Costs

1 213,000 $1,150,828

2 220,200 $1,172,328

3 217,900 $1,180,981

4 234,000 $1,196,523

5 249,900 $1,198,827

6 243,000 $1,219,673

7 223,200 $1,194,699

8 250,200 $1,237,774

9 241,800 $1,236,226

10 255,600 $1,248,325

11 253,200 $1,252,760

12 262,200 $1,283,451

a.Bunk Stores has requested a quote for a special order of Bubbs. This order would not be subject to any corporate allocation (and would not affect corporate costs). What is the minimum price Mr. Andre can offer Bunk without reducing profit any further?

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