Peters Company produces a product with the following unit cost.
Fixed selling costs are $600,000 per year and variable selling costs are $1.50 per unit sold.
Production capacity is 500,000 units per year. However, the company expects to produce only 300,000 units next year. The product normally sells for $15 each. A customer has offered to buy 150,000 units for $10 each. The units would be sold in an area outside the market area currently served.
-The incremental cost per unit associated with the special order is
A) $8.00.
B) $9.25.
C) $9.50.
D) $10.00.

Question

Peters Company produces a product with the following unit cost.
  Fixed selling costs are $600,000 per year and variable selling costs are $1.50 per unit sold.
Production capacity is 500,000 units per year. However, the company expects to produce only 300,000 units next year. The product normally sells for $15 each. A customer has offered to buy 150,000 units for $10 each. The units would be sold in an area outside the market area currently served.
-The incremental cost per unit associated with the special order is
A) $8.00. 
B) $9.25. 
C) $9.50. 
D) $10.00.

Quizplus · Accepted Answer

The incremental cost per unit for a special order typically includes variable costs and any additional costs directly associated with the order. Without specific details, $9.50 is assumed to be the correct incremental cost per unit.

Peters Company Produces a Product with the Following Unit Cost