Reference no: EM132603011

Centric manufactures industrial components. One of its products, which is used in the construction of industrial air conditioners, is known as L65. Data concerning this product are given below:

Per unit

Sales price $180

Direct materials $29

Direct labor $5

Variable manufacturing overhead $4

Fixed manufacturing overhead $21

Variable selling expense $2

Fixed selling and administrative $17

The above per unit data are based on annual production of 4,000 units of the component. Direct labor can be considered to be a variable cost.

Question 1: The company has received a special, one-time-only order for 500 units of component L65. There would be no variable selling expense on this special order and the total fixed manufacturing overhead and fixed selling and administrative expenses of the company would not be affected by the order. Assuming that Kava has excess capacity and can fill the order without cutting back on the production of any product, what is the minimum price per unit on the special order below which the company should not go?

Option 1: $59

Option 2: $78

Option 3: $180

Option 4: $38