Buxton Company is currently operating at a loss of $15,000.The sales manager has received a special order for 5,000 units of product,which normally sells for $35 per unit.Costs associated with the product are: direct material,$6;direct labor,$10;variable overhead,$3;applied fixed overhead,$4;and variable selling expenses,$2.The special order would allow the use of a slightly lower grade of direct material,thereby lowering the price per unit by $1.50 and selling expenses would be decreased by $1.If Buxton wants this special order to increase the total net income for the firm to $10,000,what sales price must be quoted for each of the 5,000 units?
A)$23.50
B)$24.50
C)$27.50
D)$34.00

Question

Quizplus · Accepted Answer

Explanation:To increase the total net income for the firm to $10,000, the special order must generate a profit of $25,000 ($10,000 + $15,000). The profit per unit is calculated as follows:Selling price per unit - (Direct material cost per unit + Direct labor cost per unit + Variable overhead cost per unit + Applied fixed overhead cost per unit + Variable selling expenses per unit)Let x be the sales price per unit. Then, we have:x - ($6 - $1.50 + $10 + $3 + $4 + $2) = $25,000 / 5,000x - $23.50 = $5x = $28.50Therefore, the sales price must be quoted for each of the 5,000 units is $28.50.

Buxton Company Is Currently Operating at a Loss of $15,000