A Manufacturer Operating with Excess Capacity Has Been Asked to Fill

question 57

Multiple Choice

A manufacturer operating with excess capacity has been asked to fill a special order at $7.25 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 $3.50 for direct materials, $2.00 for direct labour, $1.00 for variable overhead, and $0.50 for sales commission. No sales commission would be paid on this special order. The average fixed overhead cost per unit is $0.25. Assume there is no excess capacity (i.e., the company can sell every unit that it produces to regular customers) . Under the general decision rule, the minimum price per unit for this special order would be:

• A)$10.00
• B)$7.25
• C)$5.75
• D)$6.50