String Corporation can manufacture 490,000 tennis rackets a year at a variable cost of $15 per racket and at the fixed costs of $500,000. String budgeted that it can sell 400,000 at $25 each. An additional order of 100,000 was received, but at a discount of 35% from the regular price.
The relevant cost to String of the special order is:
A) $1,500,000
B) $1,450,000
C) $1,625,000
D) Some other amount

Question

Quizplus · Accepted Answer

The relevant cost for the special order includes the variable cost of producing the additional 100,000 rackets. The fixed costs are not relevant because they would be incurred regardless of whether the special order is accepted. The variable cost is $15 per racket for 100,000 rackets, which equals $1,500,000. However, since none of the provided options accurately reflects only the relevant costs (variable costs) without including or excluding other factors incorrectly, the correct answer is "Some other amount."

String Corporation Can Manufacture 490,000 Tennis Rackets a Year at a Variable