A Manufacturer Operating with Excess Capacity Has Been Asked to Fill

question 6

Multiple Choice

A manufacturer operating with excess capacity has been asked to fill a special order at $9.25 per unit. The regular price is $10 per unit. No other use of the currently idle capacity can be found. The manufacturer's usual variable costs per unit are $4.50 for direct materials, $3.00 for direct labour, $1.00 for variable overhead, and $1.50 for sales commission. No sales commission would be paid on this special order. The average fixed overhead cost per unit is $0.25. Under the general decision rule, the minimum price per unit for this special order is:

• A) $8.75
• B) $8.50
• C) $10.00
• D) $7.50

---

Definitions:

Outstanding Checks

Checks that do not appear on the bank statement.

Compounded Monthly

Refers to the process of calculating interest on both the initial principal and the accumulated interest from previous periods on a monthly basis.

Present Value

The current value of a deposit that is made in the present time.

Periodic Deposit Investment

An investment strategy involving regular, fixed-amount contributions into an investment account.