What would be the minimum acceptable price per unit

Reference no: EM131889757

Problem

Juggle Puzzle Company produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 40,000 units per month is as follows: GHC Direct materials Direct labour Variable manufacturing overhead Fixed manufacturing overhead Variable selling & administrative expense Fixed selling & administrative expense 38.80 9.70 2.30 18.10 1.70 8.80 The normal selling price of the product is GHC81.10 per unit. An order has been received from an overseas customer for 3,000 units to be delivered this month at a special discounted price. This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be GHC0.20 less per unit on this order than on normal sales. Direct labour is a variable cost in this company.

Required:

(a) Suppose the company has ample idle capacity to produce the units required by the overseas customer and the special discounted price on the special order is GHC75.30 per unit. By how much would this special order increase or decrease the company's net operating income for the month?

(b) Suppose the company is already operating at full capacity when the special order is received from the overseas customer. What would be the opportunity cost of each unit delivered to the overseas customer?

(c) Suppose the company does not have enough idle capacity to produce all of the units for the oversea customer and accepting the special order would require cutting back on production of 1,000 units for regular customers. What would be the minimum acceptable price per unit for the special order?

Reference no: EM131889757

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