Regarding the following quote:
And yes, I am a little ticked that their offer was dealer cost not their cost.
Smith and Wesson may have contracts in place with "favored nation status" provisions. This means that if they sell handguns at a lower price than the contracted price, this customer would automatically be entitled to the lower price. It's common, especially when dealing with the government.
So it is possible that S&W's hands are tied in terms of pricing. Offering a unit to you, or anyone, at manufacturing cost could trigger all sorts of pricing rollbacks with existing clients, and even rebates on units already bought.