Canine Creations produces treats for dogs called "bark-bites." It currently sells the treats nationally at a price of $15 per bag, with a unit variable cost of $4 and total fixed costs of $2,200 per month. A local organic pet store has requested a special order of 250 "bark-bites" treat bags but would like them to be gluten-free. The flour that would be required to make the special-order treats would add an additional $1 to each bag of treats. Since the company is currently operating at full capacity, it would have to add production capacity which would add $500 to the current fixed costs. What is the minimum special-order price that Canine Creations would be willing to accept for a bag of "bark-bites?"
A) $5.00
B) $7.00
C) $13.80
D) $15.00

Question

Quizplus · Accepted Answer

Lowest acceptable price (no excess capacity available) = Total Unit Variable Costs + Additional Unit Fixed Cost = Original Unit Variable Cost + Additional Unit Variable Unit Cost + Additional Unit Fixed Cost = $4 + $1 + $500/250 bags = $7.00.

Canine Creations Produces Treats for Dogs Called "Bark-Bites