Fastenalt is an industrial supply manufacturer that provides HVAC Specialty Thermostats to manufacturers and retailers. Fastenalt has experienced substantial growth in the past three years and is known for its high quality thermostats and reliable on-time delivery. These characteristics have resulted in high customer satisfaction. Fastenalt focuses on the strategic objectives of quality, reliability and growth. Fastenalt's operating capacity is 4,000 thermostats per month and is currently selling 3,500 thermostats each month. Fastenalt has received a request for a special order of 800 specialty thermostats for $150,000 from Hank's Retailer.
Hank's is the largest hardware retailer in the metropolitan area and surrounding region. Hank's is not a current customer of Fastenalt's. Production costs for the thermostats would be the same however Fastenalt would incur additional set-up costs of $20,000 to complete Hank's order. No marketing costs would be associated with the special order. If Fastenalt accepts the special offer, Hank's requires that Fastenalt fill the entire order of 800 units.
The following information is for Fastenalt's current operations:
1. Does Fastenalt have the capacity to accept the special order from Hank?
2. If Fastenalt accepts Hank's special order, what is Fastenal's cost from lost sales of current customers?
3. Using a relevant cost analysis should Fastenalt accept Hank's special order?
4. If Fastenalt does not have excess capacity to accept Hank's offer, what is the minimum price Fastenalt should accept from Hank's for the special order?
5. If Fastenalt has excess capacity, what is the minimum price Fastenalt should accept from Hank's for the special order?
6. Refer back to Fastenalt's original capacity of 4,000 units. Discuss the strategic implications of accepting Hank's offer.
7. Discuss the strategic implications of rejecting Hank's offer.