A Company Is Currently Operating at 65% Capacity Producing 12,000

question 137

Essay

A company is currently operating at 65% capacity producing 12,000 units.Cost information relating to this current production is shown in the following table:
$$\begin{array} { | l | r | } \hline & \text { Per Urit } \\\hline \text { Sales price } & \$ 6 \\\hline \text { Direct rraterial } & \$ 2.30 \\\hline \text { Direct labor } & \$ 0.87 \\\hline \begin{array} { l } \text { Variable } \\\text { overhead }\end{array} & \$ 0.91 \\\hline \text { Fixed overhead } & \$ 0.70 \\\hline\end{array}$$ The company has been approached by a customer with a request for a special order for 2,000 units.What is the minimum per unit sales price that management would accept for this order if the company wishes to increase current profits?

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Definitions:

Semiannual Interest

Interest that is calculated and paid twice a year on investments or loans.

Par Value

The nominal or face value of a stock or bond, which is the amount stated on the certificate or instrument.

Bondholders

Individuals or institutions that hold the debt securities issued by corporations or governments, entitled to receive the bond's face value at maturity and periodic interest payments.

Debt-To-Equity Ratio

This measure indicates the proportionate use of debt and shareholder equity in asset financing for a company.