ZuoTi.Pro
Question

A firm sells a product for a per unit price of $500. Variable costs per unit...

A firm sells a product for a per unit price of $500. Variable costs per unit are $450.

A customer approaches the firm with a request for a special order of 1,200 units. This customer wants a discount because of the size of their order.

A special piece of equipment, worth $5,000, must be purchased to complete the special order. The firm also has limited capacity for the special order. It only has excess capacity to produce 700 units of the special order.

What is the floor for the price that the firm negotiates with the customer?

a.

$450 per unit
b.

$500 per unit
c.

Price floor is greater than price ceiling. No price is economically feasible.
d.

$475 per unit
business   accounting   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

relevant cost of making the special order $540,000 1200 450 variable cost special equipment loss of contribution on regular sales 25,000 (500-450) *(1200-700) total cost $ 5,000 $570,000 minimum total price to be charged$570,000 total units in the special order 1,200 $ 475$570,000/1200 hence, the correct answer is d. $475 per unit. Note1 The firm shall have to sacrifice regular sales on 500 units since there is excess capacity for only 700 units. Contribution per unit to be sacrificed regular sale price variable cost Contribution per unit to be sacrificed $500- $450 Contribution per unit to be sacrificed50

0 0
Add a comment
Know the answer?
Add Answer to:
A firm sells a product for a per unit price of $500. Variable costs per unit...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Bob makes widgets. Variable costs per unit are $4. Fixed cost per unit (at an output...

    Bob makes widgets. Variable costs per unit are $4. Fixed cost per unit (at an output level of 100) are $2 per unit. The normal sales price per unit is $10. A customer approaches Bob offering to buy 40 widgets for $8 each. Assume Bob has excess capacity. 1) What is the effect on operating income if he accepts the order? 2) Assume that, to fill the special order, Bob must buy and completely use up (no future use) a...

  • Falcon Co. produces a single product. Its normal selling price is $25 per unit. The variable...

    Falcon Co. produces a single product. Its normal selling price is $25 per unit. The variable costs are $16 per unit. Fixed costs are $18,500 for a normal production run of 5,000 units per month. Falcon received a request for a special order that would not interfere with normal sales. The order was for 1,690 units with a special price of $20 per unit. Falcon has the capacity to handle the special order, and for this order, a variable selling...

  • Julison Company produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 60,000 units per month is as follows:

    Julison Company produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 60,000 units per month is as follows: The normal selling price of the product is $79.80 per unit. An order has been received from an overseas customer for 2.000 units to be delivered this month at a special discounted price. This order would have no effect on the company's normal sales and would not change the...

  • AB Inc. currently produces a product with the following cost characteristics: Selling price $92 Variable costs...

    AB Inc. currently produces a product with the following cost characteristics: Selling price $92 Variable costs – production 34 Variable costs – S&A 20 Total fixed costs $994680 Plant capacity 41322 Current product/sales volume 36840 A customer approaches AB Inc. for a special one-time order to purchase 10851 units at a special price of $76 per unit. No variable selling and administrative costs would be incurred on this special order. What would be the incremental income to AB Inc. if...

  • AB Inc. currently produces a product with the following cost characteristics: Selling price $99 Variable costs-production...

    AB Inc. currently produces a product with the following cost characteristics: Selling price $99 Variable costs-production 32 Variable costs - S&A 15 $925433 Total fixed costs Plant capacity 41678 Current product/sales volume 36782 A customer approaches AB Inc. for a special one-time order to purchase 10269 units at a reduced price No variable selling and administrative costs would be incurred on this special order. What is the minimum acceptable per unit price for this order? Select one: a. $74.21 b....

  • ABC company total cost of making a product is $18.00 per unit and included in that...

    ABC company total cost of making a product is $18.00 per unit and included in that price is $6.00 fixed cost per unit. The company sells this product to the local customers for $22.00 per unit. ABC gets a request from a customer from oversea to buy 500 units from ABC for a price of $14.00 per unit. Answer the following questions: a) Should ABC company accept the special order? (Yes or No?) (see page 130-131). b) If ABC company...

  • Waterloo Co. sells product P-14 at a price of $48 a unit. The per-unit cost data...

    Waterloo Co. sells product P-14 at a price of $48 a unit. The per-unit cost data are direct materials $16, direct labour $11, and overhead $16 (75% variable). Waterloo Co. has sufficient capacity to accept a special order for 35,300 units, but at a discount of 25% from the regular price. Selling costs associated with this order would be $4 per unit. Determine whether Waterloo Co. should accept the special order. (Enter loss with a negative sign preceding the number,...

  • UNTER COMPONENTS Star 150 150 Costs per unit Direct materials Direct labor Variable overhead Fixed overhead...

    UNTER COMPONENTS Star 150 150 Costs per unit Direct materials Direct labor Variable overhead Fixed overhead Total cost per unit Price Units sold Star 100 130 $ 60 30 180 400 $ 580 $ 4,000 40 240 510 780 2,000 40 Additional Information: Variable overhead varies with quantity of direct labor-hours. Average wage rate per hour Plant capacity (in direct labor-hours) 20,000 Current production (in direct labor-hours) 10,000 Requirement a. Information: Star 100 2,500 400 $ Star 150 2,500 500...

  • Waterloo Co. sells product P-14 at a price of $46 a unit. The per-unit cost data...

    Waterloo Co. sells product P-14 at a price of $46 a unit. The per-unit cost data are direct materials $15, direct labour $10, and overhead $16 (75% variable). Waterloo Co. has sufficient capacity to accept a special order for 39,100 units, but at a discount of 25% from the regular price. Selling costs associated with this order would be $3 per unit. Determine whether Waterloo Co. should accept the special order. (Enter loss with a negative sign preceding the number,...

  • A firm sells one product, a 21-jet jacuzzi, for a per unit price of $10,000. Variable...

    A firm sells one product, a 21-jet jacuzzi, for a per unit price of $10,000. Variable costs per unit are $5,000. The firm also sells a second product, a jacuzzi skimmer (for clearing debris from the water), for a per unit price of $50. Variable costs per unit are $25. The firm has a sales mix of 1 jacuzzi for every 50 jacuzzi skimmers. That is, the sales mix is 1:50. The firm has total fixed costs of $940,000. How...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT