Answer the following question(s)using the information below.Gerry's Generator Supply is approached by Mr.Gladstone, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers.Gerry's Generator Supply has excess capacity.The following per unit data apply for sales to regular customers:

-If Mr.Gladstone wanted a long-term commitment for supplying this product, what price would most likely be quoted to him?
A)$1,000
B)$1,200
C)$1,290
D)$1,400
E)$1,075

Question

Answer the following question(s)using the information below.Gerry's Generator Supply is approached by Mr.Gladstone, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers.Gerry's Generator Supply has excess capacity.The following per unit data apply for sales to regular customers:
 
-If Mr.Gladstone wanted a long-term commitment for supplying this product, what price would most likely be quoted to him?
A)$1,000 
B)$1,200 
C)$1,290 
D)$1,400 
E)$1,075

Quizplus · Accepted Answer

Since Gerry's Generator Supply has excess capacity, it can afford to offer a lower price for a long-term commitment. One strategy for determining this price is to determine the variable cost per unit (in this case, $580), add a markup percentage to cover fixed costs and generate some profit (in this case, 40%), and then divide by the percentage of regular price that Mr. Gladstone is willing to pay (in this case, 90%). Applying this formula yields a price of $1,290.

Answer the Following Question(s)using the Information Below