A manufacturer has been asked to fill a special order at $7.25 per unit. The regular price is $10 per unit. No other use of the currently idle capacity can be found. The manufacturer's usual variable costs per unit are $3.50 for direct materials, $2.00 for direct labour, $1.00 for variable overhead, and $0.50 for sales commission. No sales commission would be paid on this special order. The average fixed overhead cost per unit is $0.25.
Assume there is no excess capacity (i.e., the company can sell every unit that it produces to regular customers). Under the general decision rule, the minimum price per unit for this special order would be:
A) $10.00
B) $7.25
C) $5.75
D) $6.50

Question

Quizplus · Accepted Answer

The minimum price should be the regular price of $10.00 because there is no excess capacity, meaning the company can sell all units at the regular price. Accepting the special order at a lower price would result in lost revenue.

A Manufacturer Has Been Asked to Fill a Special Order