Gen Company has provided the following per unit information pertaining to the production and sale
For one of its generators:
$$\begin{array} { | l | r | }
\hline \text { Direct materials } & \$ 250 \
\hline \text { Direct Labor } & \$ 50 \
\hline \text { Variable manufacturing overhead } & \$ 75 \
\hline \text { Packaging and shipping } & \$ 49 \
\hline \text { Fixed manufacturing overhead } & \$ 45 \
\hline \text { Variable selling } & \$ 18 \
\hline \text { Fixed selling } & \$ 30 \
\hline
\end{array}$$ Gen has received a special sales order for 1,000 units of this generator. If Jen accepts the special sales
Order, 300 units of sales to regular customers will have to be given up. The variable selling expenses
Associated with this special sales order will be reduced by $8 per unit. What is the minimum per unit
Selling price that Gen is willing to accept?

Question

Gen Company has provided the following per unit information pertaining to the production and sale
For one of its generators:
$$\begin{array} { | l | r | } 
\hline \text { Direct materials } & \$ 250 \
\hline \text { Direct Labor } & \$ 50 \
\hline \text { Variable manufacturing overhead } & \$ 75 \
\hline \text { Packaging and shipping } & \$ 49 \
\hline \text { Fixed manufacturing overhead } & \$ 45 \
\hline \text { Variable selling } & \$ 18 \
\hline \text { Fixed selling } & \$ 30 \
\hline
\end{array}$$ Gen has received a special sales order for 1,000 units of this generator. If Jen accepts the special sales
Order, 300 units of sales to regular customers will have to be given up. The variable selling expenses
Associated with this special sales order will be reduced by $8 per unit. What is the minimum per unit
Selling price that Gen is willing to accept?

Quizplus · Accepted Answer

The minimum per unit selling price Gen is willing to accept can be calculated by adding up all the variable costs and fixed costs that are relevant to producing one unit. The fixed selling cost is not included in the calculation of the minimum selling price per unit because it does not change with the number of units produced or sold. The calculation is as follows:- Direct materials: $250- Direct labor: $50- Variable manufacturing overhead: $75- Packaging and shipping: $49- Fixed manufacturing overhead: $45- Variable selling (reduced by $8): $18 - $8 = $10Adding these costs gives us: $250 + $50 + $75 + $49 + $45 + $10 = $429However, the correct answer is $497, which suggests there might have been a misunderstanding in the calculation or the interpretation of the question. The discrepancy could be due to not accounting for the opportunity cost of losing sales to regular customers or a misinterpretation of the fixed costs. Fixed manufacturing overhead should not vary with the number of units produced, and typically, the fixed selling cost would not be included in the calculation of the minimum selling price per unit. The inclusion of fixed manufacturing overhead in the per-unit cost calculation for a special order is also questionable unless it's specifically relevant to the decision at hand. Given the provided choices and the calculation error acknowledged, the correct approach to find the minimum selling price would involve correctly identifying and summing the variable costs and considering any additional relevant costs or savings specific to the special order scenario. The provided answer choice (C) $497, therefore, seems to be based on a misunderstanding or an incorrect calculation based on the given data and typical cost accounting principles.

Gen Company Has Provided the Following Per Unit Information Pertaining