Reference no: EM132603146

A company manufactures shirts, and it is considering whether or not it should accept a special order for 6,000 shirts. The normal selling price of a shirt is $57 and its unit product cost is $20 as shown below:

Direct materials              $8.00

Direct labor                   $2.00

Manufacturing overhead  $10.00

Unit product cost            $20.00

Most of the manufacturing overhead is fixed; however, 30% of it is variable with respect to the number of shirts produced. The special order will require customizing the shirts for the customer with an additional direct materials cost of $4 per shirt and an additional direct labor cost of $3 per shirt. If it accepts this order, the company will have to rent special equipment to handle the shirt customization at a cost of $54,000. The order would have no effect on the company's regular sales and it could be fulfilled using the company's existing capacity without affecting any other order.

Question 1: What is the minimum (i.e., the break-even) sales price per unit that the company should charge for this special order?

Multiple Choice

Option 1: $27

Option 2: $20

Option 3: $36

Option 4: $29