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

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Definitions:

Cure and Smoke

The process of preserving and flavoring food, particularly meats, by applying a combination of salt, nitrates, and sometimes sugar (curing) and then exposing it to smoke from burning or smoldering material, usually wood (smoking).

Revocation Effective

The point in time when the cancellation or withdrawal of a legal privilege, right, or contract becomes officially valid.

Irrevocable Offer

An offer that cannot be withdrawn or revoked for a certain period once made, holding the offeror to their promise.

Roasting Services

A business service centered on processing coffee beans or other products by applying heat to achieve desired flavors.