Crystal has received a special order for 2,000 units of its product.The product normally sells for $200 and has the following manufacturing costs: Crystal is currently operating at full capacity and cannot fill the order without harming normal production and sales.What minimum price should Crystal charge to earn an incremental profit of $50,000?

A)$175
B)$200
C)$225
D)$155

Question

Crystal has received a special order for 2,000 units of its product.The product normally sells for $200 and has the following manufacturing costs: Crystal is currently operating at full capacity and cannot fill the order without harming normal production and sales.What minimum price should Crystal charge to earn an incremental profit of $50,000?
Crystal has received a special order for 2,000 units of its product.The product normally sells for $200 and has the following manufacturing costs: Crystal is currently operating at full capacity and cannot fill the order without harming normal production and sales.What minimum price should Crystal charge to earn an incremental profit of $50,000? A) $175 B) $200 C) $225 D) $155

A)$175 
B)$200 
C)$225 
D)$155

Quizplus · Accepted Answer

To earn an incremental profit of $50,000, Crystal needs to generate $250,000 in revenue ($50,000 divided by 0.2, which is the contribution margin per unit).

Since the manufacturing costs for each unit are $120, Crystal's contribution margin per unit is $80 ($200 selling price minus $120 manufacturing cost).

To generate $250,000 in revenue, Crystal needs to sell 3,125 units ($250,000 divided by $80 contribution margin per unit).

However, Crystal can only produce 2,000 units without harming normal production and sales.

Therefore, the minimum price that Crystal should charge to earn an incremental profit of $50,000 is $225 per unit ($450,000 total revenue divided by 2,000 units).

This price ensures that Crystal generates the required revenue with the limited production capacity while earning the desired incremental profit.

Crystal Has Received a Special Order for 2,000 Units of Its