Palm Furniture manufactures outdoor patio sets with the following unit selling price and unit costs at capacity of 5,000 units: A wholesale outlet has offered to purchase 200 outdoor patio sets but is not willing to pay the retail price of $1,300. What is the lowest price that Palm Furniture should accept if it is currently operating at only 80% capacity?

Question

Palm Furniture manufactures outdoor patio sets with the following unit selling price and unit costs at capacity of 5,000 units:  A wholesale outlet has offered to purchase 200 outdoor patio sets but is not willing to pay the retail price of $1,300. What is the lowest price that Palm Furniture should accept if it is currently operating at only 80% capacity?

Quizplus · Accepted Answer

Lowest acceptable price (excess capacity available) = Total Unit Variable Costs = Direct Materials + Direct Labor + Variable Overhead = $400 + $320 + $150 = $870.

Palm Furniture Manufactures Outdoor Patio Sets with the Following Unit