Seller is being furnished metal castings from Buyer. The cost of castings is $15,000.
Seller will "machine" the castings to arrive at a finished part, and Seller's total charge to Buyer for its machining labor is $5000 per casting.
Buyer wants Seller to machine 10 castings to arrive at a finished part.
Seller includes the cost of the castings, or $150,000, in its proposal to Buyer, plus $50,000 for its machining labor of $5000x10 castings. Total proposal price is $200,000.
Buyer is allowed to mess up 15% of the order without penalty; in other words, Buyer can machine and mess up 1.5 parts out of the total 10 castings.
BUT if Buyer messes up more than 15%, Seller must pay for a portion of the casting, but only to the extent that Seller will still make 15% profit.
What if Seller messes up 16%, or 1.6 parts?
How much of the casting cost can Seller reimburse Buyer which would still allow Seller to make 15% profit? (15% x $200,000=$30,000 total profit is required.)