The Mighty Music Company produces and sells a desktop speaker for $100.The company has the capacity to produce 50,000 speakers each period.At capacity,the costs assigned to each unit are as follows: $$\begin{array} { | l | l | }
\hline \text { Unit level costs } & \$ 45 \
\hline \text { Product level costs } & \$ 15 \
\hline \text { Facility level costs } & \$ 5 \
\hline
\end{array}$$ The company has received a special order for 500 speakers.If this order is accepted,the company will have to spend $15,000 on additional costs.Assuming that no sales to regular customers will be lost if the order is accepted,at what selling price will the company be indifferent between accepting and rejecting the special order?
A) $95
B) $45
C) $75
D) $60

Question

The Mighty Music Company produces and sells a desktop speaker for $100.The company has the capacity to produce 50,000 speakers each period.At capacity,the costs assigned to each unit are as follows: $$\begin{array} { | l | l | } 
\hline \text { Unit level costs } & \$ 45 \
\hline \text { Product level costs } & \$ 15 \
\hline \text { Facility level costs } & \$ 5 \
\hline
\end{array}$$ The company has received a special order for 500 speakers.If this order is accepted,the company will have to spend $15,000 on additional costs.Assuming that no sales to regular customers will be lost if the order is accepted,at what selling price will the company be indifferent between accepting and rejecting the special order?
A) $95
B) $45
C) $75
D) $60

Quizplus · Accepted Answer

The company will be indifferent between accepting and rejecting the special order if the selling price is equal to the variable cost per unit plus the additional costs divided by the number of units in the special order. The variable cost per unit is $45 + $15 = $60. The additional costs are $15,000. The number of units in the special order is 500. Therefore, the selling price that will make the company indifferent between accepting and rejecting the special order is $60 + $15,000 / 500 = $75.

The Mighty Music Company Produces and Sells a Desktop Speaker