Albuquerque Corporation makes and sells the "Desert Icon",a wall hanging depicting a magical cactus plant.The Desert Icons are sold at specialty shops for $50 each.The capacity of the plant is 15,000 Icons.Costs to manufacture and sell each wall hanging are as follows:
Direct material $ \$5.00 $
Direct1abor 6.00
Variable overhead 8.00
Fixed overhead 10.00
Variable selling costs 2.50
Albuquerque Corporation has been approached by a Utah company about purchasing 2,500 Desert Icons.The company is currently making and selling 15,000 per year.The Utah company wants to attach its own state label,which increases costs by $.50 each.No selling expenses would be incurred on this order.The corporation believes that it must make an additional $1 on each Desert Icon to accept this offer.
a. What is the opportunity cost per unit of selling to the Utah company?
b. What is the minimum sellingprice that shmuld be set?

Question

Albuquerque Corporation makes and sells the "Desert Icon",a wall hanging depicting a magical cactus plant.The Desert Icons are sold at specialty shops for $50 each.The capacity of the plant is 15,000 Icons.Costs to manufacture and sell each wall hanging are as follows:
 Direct material                        $ \$5.00 $
Direct1abor                              6.00
Variable overhead                   8.00
Fixed overhead                       10.00
Variable selling costs              2.50
Albuquerque Corporation has been approached by a Utah company about purchasing 2,500 Desert Icons.The company is currently making and selling 15,000 per year.The Utah company wants to attach its own state label,which increases costs by $.50 each.No selling expenses would be incurred on this order.The corporation believes that it must make an additional $1 on each Desert Icon to accept this offer.
 a. What is the opportunity cost per unit of selling to the Utah company? 
b. What is the minimum sellingprice that shmuld be set?

Quizplus · Accepted Answer

The Answer of Albuquerque Corporation makes and sells the "Desert Icon",a wall hanging depicting a magical cactus plant.The Desert Icons are sold at specialty shops for $50 each.The capacity of the plant is 15,000 Icons.Costs to manufacture and sell each wall hanging are as follows:
 Direct material                        $ \$5.00 $
Direct1abor                              6.00
Variable overhead                   8.00
Fixed overhead                       10.00
Variable selling costs              2.50
Albuquerque Corporation has been approached by a Utah company about purchasing 2,500 Desert Icons.The company is currently making and selling 15,000 per year.The Utah company wants to attach its own state label,which increases costs by $.50 each.No selling expenses would be incurred on this order.The corporation believes that it must make an additional $1 on each Desert Icon to accept this offer.
 a. What is the opportunity cost per unit of selling to the Utah company? 
b. What is the minimum sellingprice that shmuld be set?

Albuquerque Corporation Makes and Sells the "Desert Icon",a Wall Hanging $5.00 \$5.00 $5.00

Albuquerque Corporation Makes and Sells the "Desert Icon",a Wall Hanging $\$5.00$