Wagner Company sells product A for $21 per unit. full capacity of 200,000 units is as follows: $$\begin{array} { | l | c | }
\hline \text { Direct materials } & \$ 4 \
\hline \text { Direct labour } & 5 \
\hline \text { Manufacturing overhead } & 6 \
\hline \text { Unit product cost } & \underline { \$ 15 } \
\hline
\end{array}$$ A special order offering to buy 20,000 units has been received from a foreign distributor. The only selling costs that would be incurred on this order would be $2 per unit for shipping. Wagner has sufficient idle capacity to manufacture the additional units.
Two-thirds of the manufacturing overhead is fixed and would not be affected by this order. Assume that direct labour is an avoidable cost in this decision. In negotiating a price for
The special order, the minimum acceptable selling price per unit should be:
A)$15.
B)$17.
C)$16.
D)$13.

Question

Wagner Company sells product A for $21 per unit. full capacity of 200,000 units is as follows: $$\begin{array} { | l | c | } 
\hline \text { Direct materials } & \$ 4 \
\hline \text { Direct labour } & 5 \
\hline \text { Manufacturing overhead } & 6 \
\hline \text { Unit product cost } & \underline { \$ 15 } \
\hline
\end{array}$$ A special order offering to buy 20,000 units has been received from a foreign distributor. The only selling costs that would be incurred on this order would be $2 per unit for shipping. Wagner has sufficient idle capacity to manufacture the additional units.
Two-thirds of the manufacturing overhead is fixed and would not be affected by this order. Assume that direct labour is an avoidable cost in this decision. In negotiating a price for
The special order, the minimum acceptable selling price per unit should be:
A)$15.
B)$17.
C)$16.
D)$13.

Quizplus · Accepted Answer

The minimum acceptable selling price per unit can be calculated by adding the variable costs per unit and the additional costs per unit. The variable costs include direct materials ($4), direct labor ($5), and variable manufacturing overhead (one-third of $6, which is $2). This totals $11. Adding the shipping cost of $2 per unit gives a total of $13 per unit as the minimum acceptable price. Fixed costs are not considered in the calculation for a special order pricing decision when there is sufficient idle capacity.

Wagner Company Sells Product a for $21 Per Unit A Special Order Offering to Buy 20,000 Units Has Been