Tenna Electronics sells arc monitors for $55 per unit. Unit product costs are as follows: $\begin{array}{lr}
\text { Direct materials } & \$ 14 \
\text { Direct labor } & 20 \
\text { Manufacturing overhead } &3 \
\text { Total } & \$ 37
\end{array}$ A special order to purchase 15,000 arc monitors was recently received from a customer. There is enough capacity to fill the order and filling this order would not disrupt current operations. Tenna will incur an additional $2 per arc monitor for additional labor costs due to a slight modification the buyer wants made to the original product. One-third of the manufacturing overhead costs is fixed and will be incurred no matter how many units are produced. In negotiating a price, how much is the minimum selling price that Tenna Electronics should accept for this special order?

Question

Quizplus · Accepted Answer

The minimum selling price should cover the variable costs plus the fixed costs that will be incurred for the special order. The variable costs are the direct materials, direct labor, and the variable portion of the manufacturing overhead. The fixed costs are the fixed portion of the manufacturing overhead.The variable costs are:Direct materials: $14 per unitDirect labor: $20 per unitVariable manufacturing overhead: $1 per unit (33% of $3)The total variable costs are $35 per unit.The fixed costs are:Fixed manufacturing overhead: $1 per unit (67% of $3)The total fixed costs are $15,000 (15,000 units x $1 per unit).The minimum selling price is the variable costs plus the fixed costs, or $35 + $1 = $36.

Tenna Electronics Sells Arc Monitors for $55 Per Unit A Special Order to Purchase 15,000 Arc Monitors Was Recently