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: 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?

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:  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?

Quizplus · Accepted Answer

Budgeted cost for production of 500 speakers:
 11ea7feb_d1d7_e3b2_a768_3f941cee63d9_TB3570_00_TB3570_00_TB3570_00 The other costs are not relevant because the company will incur them whether it accepts or rejects the special order. At a minimum, the company would need to earn revenue of $37,500 to be indifferent between accepting and rejecting this special order. The price per unit would be calculated as follows:
$37,500 ÷ 500 units = $75 per unit

The Mighty Music Company Produces and Sells a Desktop Speaker