Peach has received a special order for 10,000 units of its product. The product normally sells for $20 and has the following manufacturing costs: Assume that Peach has sufficient capacity to fill the order. What price should Peach charge to make a $10,000 incremental profit?
A) $20
B) $17
C) $12
D) $15

Question

Peach has received a special order for 10,000 units of its product. The product normally sells for $20 and has the following manufacturing costs:  Assume that Peach has sufficient capacity to fill the order. What price should Peach charge to make a $10,000 incremental profit?
A) $20 
B) $17 
C) $12 
D) $15

Quizplus · Accepted Answer

To determine the price that Peach should charge to make a $10,000 incremental profit, we need to first calculate the total cost of manufacturing 10,000 units of the product.

Total manufacturing cost = $6 per unit x 10,000 units = $60,000

Next, we need to determine the revenue that Peach would receive from selling 10,000 units at different prices.

At $20 per unit: Revenue = $20 x 10,000 units = $200,000 
Profit = Revenue - Total Cost = $200,000 - $60,000 = $140,000

At $17 per unit: Revenue = $17 x 10,000 units = $170,000 
Profit = Revenue - Total Cost = $170,000 - $60,000 = $110,000

At $12 per unit: Revenue = $12 x 10,000 units = $120,000 
Profit = Revenue - Total Cost = $120,000 - $60,000 = $60,000

At $15 per unit: Revenue = $15 x 10,000 units = $150,000 
Profit = Revenue - Total Cost = $150,000 - $60,000 = $90,000

We can see that the highest incremental profit is achieved at a price of $12 per unit, with a profit of $60,000. Therefore, the best choice is C.

Peach Has Received a Special Order for 10,000 Units of Its