Answer the following questions using the information below:
Kolar Manufacturing is approached by a European customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. Kolar Manufacturing has excess capacity. The following per unit data apply for sales to regular customers:

-For Kolar Manufacturing, what is the minimum acceptable price of this special order?
A)$220
B)$290
C)$340
D)$510

Question

Answer the following questions using the information below:
Kolar Manufacturing is approached by a European customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. Kolar Manufacturing has excess capacity. The following per unit data apply for sales to regular customers:
 
-For Kolar Manufacturing, what is the minimum acceptable price of this special order?
A)$220 
B)$290 
C)$340 
D)$510

Quizplus · Accepted Answer

The minimum acceptable price for the special order can be calculated as follows: 
Selling price to regular customers = $550 
Less: Variable costs per unit = $220 
Contribution margin per unit = $330 
Since Kolar Manufacturing has excess capacity, accepting the special order would result in additional contribution margin. Therefore, the minimum acceptable price would be equal to the variable costs per unit, which is $220.

The best choice is to accept the special order at a price of $220, as this would generate additional revenue and contribution margin for the company without incurring any additional fixed costs.

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