Reference no: EM132158230

Question - Order of a Special Price

Metro Motors diesel engine plant is currently operating slightly above break-even at 30% of its 200,000 unit capacity. Metro wants to take advantage of an opportunity to bid on a special order from a potential customer. Metro's regular product sells for $400 and has the following costs per unit: variable manufacturing, $100; fixed manufacturing, $180; variable selling and administrative, $35; fixed selling and administrative, $50. The order would be for 40,000 units over each of the next 5 years, with no hope for renewal because of product-line changes, and would require an expenditure of $4,000,000 for special machinery that would have no alternative use. Variable selling costs would be $10 less per unit on the special order, but variable manufacturing would be $10 higher. If Metro requires a minimum of a $15 per unit contribution towards profits on a special order, what should be its minimum bid?