West Star Company manufactures computers. The following cost information for the manufacture of one computer has been compiled: West Star received an offer for a special order for 1,000 computers. In addition to normal costs, West Star would also incur a $10 shipping charge per computer. In negotiating a price, what is the minimum selling price West Star should accept? (Assume that other variables do not change and West Star has enough capacity to fulfill the order.)

Question

West Star Company manufactures computers. The following cost information for the manufacture of one computer has been compiled:  West Star received an offer for a special order for 1,000 computers. In addition to normal costs, West Star would also incur a $10 shipping charge per computer. In negotiating a price, what is the minimum selling price West Star should accept? (Assume that other variables do not change and West Star has enough capacity to fulfill the order.)

Quizplus · Accepted Answer

The cost to manufacture one computer is $225 + $10 (shipping) = $235.

To calculate the minimum selling price, we need to add a markup that will cover all the normal costs plus any additional costs incurred for the special order.

Markup = (Total cost + Additional cost) ÷ Number of units

Total cost = $235 × 1000 = $235,000

Additional cost = $10 × 1000 = $10,000

Markup = ($235,000 + $10,000) ÷ 1000 = $245

Therefore, the minimum selling price West Star should accept is $245 per computer. The closest answer is D) $250.

West Star Company Manufactures Computers