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

question 118

Essay

A company is currently operating at 65% capacity producing 12,000 units. Cost information relating to this current production is shown in the table below.
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?
$$\begin{array} { | l | r | } \hline & \text { Per Unit } \\\hline \text { Sales price } & \$ 6 \\\hline \text { Direct material } & \$ 2.30 \\\hline \text { Direct labor } & \$ 0.87 \\\hline \begin{array} { l } \text { Variable } \\\text { overhead }\end{array} & \$ 0.91 \\\hline \text { Fixed overhead } & \$ 0.70 \\\hline\end{array}$$

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Definitions:

Rational Choice Model

An economic principle that assumes individuals always make prudent and logical decisions that provide them with the highest personal utility.

Well-being

A holistic measure encompassing the emotional, physical, mental, and social health of individuals or communities.

Appropriate Bargaining Unit

A group of employees with a clear and identifiable community of interests, recognized by a labor organization or by legal authorities, as being suitable for collective bargaining purposes.

Supervisory

Relating to a role or position with the authority to oversee and direct the work of others, often within a workplace setting.