The Young Company Has Gathered the Following Information for a Unit

question 12

Multiple Choice

The Young Company has gathered the following information for a unit of its most popular product:
$$\begin{array} { l r } \text { Direct materials } & \$ 12 \\\text { Direct labor } & 6 \\\text { Overhead (40\% variable) } &\underline{ 10} \\ \text { Cost to marnufacture } & 28 \\\text { Desired markup (50\%) } &\underline{ 14} \\ \text { Target selling price } &\underline{ \$ 42 }\\\end{array}$$
The above cost information is based on 10,000 units. A distributor has offered to buy 2,000 units at a price of $32 per unit.
- The distributor claims this special order would not disturb regular sales at $42. Special packaging and other selling expenses would be an additional $0.50 per unit for the special order. How many units of regular sales could be lost before this contract is not profitable?

• A) 0 units
• B) 950 units
• C) 1,000 units
• D) 2,000 units

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Definitions:

Supply Declines

A situation where the quantity of a good or service that producers are willing to sell at a given price decreases.

Demand Rises

An increase in the quantity of a product or service that consumers are willing and able to purchase at a given price level.

Given Demand Curve

A graphical representation of the relationship between the price of a good or service and the quantity demanded by consumers at various price levels.

Excess Quantity Demanded

A situation where the quantity demanded of a good or service exceeds the quantity supplied at a particular price.