Glow Sticks Corporation manufactures and sells glow-in-the-dark necklaces for $10 each.The company has the capacity to produce 25,000 necklaces in a year,but is currently producing and selling 20,000 necklaces per year.The company currently is incurring the following costs at its current production level of 20,000 necklaces:

An amusement park is interested in purchasing the excess capacity of 5,000 necklaces if it can receive a special price.This special order would not affect Glow Sticks Corporation's regular sales or its cost structure.Glow Sticks Corporation's profits would increase from this special order if the special order price per necklace is greater than

Question

Glow Sticks Corporation manufactures and sells glow-in-the-dark necklaces for $10 each.The company has the capacity to produce 25,000 necklaces in a year,but is currently producing and selling 20,000 necklaces per year.The company currently is incurring the following costs at its current production level of 20,000 necklaces:

An amusement park is interested in purchasing the excess capacity of 5,000 necklaces if it can receive a special price.This special order would not affect Glow Sticks Corporation's regular sales or its cost structure.Glow Sticks Corporation's profits would increase from this special order if the special order price per necklace is greater than

Quizplus · Accepted Answer

First, we need to calculate the cost per unit of producing 20,000 necklaces:
Total fixed costs + Total variable costs / Total number of units produced
= $80,000 + ($4.00 + $1.50) * 20,000 / 20,000
= $6.50 per necklace

Next, we need to determine the minimum price for the special order that would result in a profit:
Revenue per unit - Cost per unit = Profit per unit
$X - $6.50 = $0.00 (since we just want to break even)
$X = $6.50

Therefore, the minimum price for the special order per necklace is $6.50. Since the special order price must be greater than $6.50 for the profits to increase, choices A, C, and D can be eliminated. Choice B, $6.75, is greater than $6.50 and would result in an increase in profits. Therefore, B is the best choice.

Glow Sticks Corporation Manufactures and Sells Glow-In-The-Dark Necklaces for $10