The president of your firm would like to offer special sale prices to your best customers under the following terms:

The prices will apply only to units purchased in excess of those normally purchased by the customer.

The units purchased must be paid for in cash at the time of sale.

The total quantity sold under these terms cannot exceed the excess capacity of the firm.

The net profit of the firm should not be affected either positively or negatively.

Given these conditions, the special sale price should be set equal to the:
A) Average variable cost.
B) Average total cost minus the marginal cost.
C) Sensitivity value of the variable cost.
D) Marginal cost.
E) Marginal cost minus the average fixed cost per unit.

Question

The president of your firm would like to offer special sale prices to your best customers under the following terms:

The prices will apply only to units purchased in excess of those normally purchased by the customer.

The units purchased must be paid for in cash at the time of sale.

The total quantity sold under these terms cannot exceed the excess capacity of the firm.

The net profit of the firm should not be affected either positively or negatively.

Given these conditions, the special sale price should be set equal to the:
A) Average variable cost.
B) Average total cost minus the marginal cost.
C) Sensitivity value of the variable cost.
D) Marginal cost.
E) Marginal cost minus the average fixed cost per unit.

Quizplus · Accepted Answer

The special sale price should be set equal to the marginal cost to ensure that the net profit of the firm is not affected either positively or negatively. This is because selling additional units at the marginal cost covers the extra cost of producing those units without impacting the overall profit margin.

The President of Your Firm Would Like to Offer Special