Paradiso Company manufactures dolls that are sold to various distributors.The company produces at full capacity for six months each year to meet peak demand; the manufacturing facility operates at 80% of capacity for the other six months of the year.The company has provided the following data for the year: $$\begin{array} { | l | r |l| }
\hline \text { No. of units produced and sold } & 400,000& \text { units } \
\hline \text { Sales price } & \$ 40& \text { per unit } \
\hline \text { Variable manufacturing costs } & \$ 20& \text { per unit } \
\hline \text { Fixed manufacturing costs } & \$ 1,000,000 &\text { per year } \
\hline \text { Variable selling and administrative costs } & \$ 5 &\text { per unit } \
\hline \text { Fixed selling and administrative costs } & \$ 500,000 &\text { per year } \
\hline
\end{array}$$ Paradiso receives an offer to produce 6,000 dolls for a special event.This is a one-time opportunity during a period when the company has excess capacity.What is the minimum sales price the company should accept for the order?

Question

Paradiso Company manufactures dolls that are sold to various distributors.The company produces at full capacity for six months each year to meet peak demand; the manufacturing facility operates at 80% of capacity for the other six months of the year.The company has provided the following data for the year: $$\begin{array} { | l | r |l| } 
\hline \text { No. of units produced and sold } & 400,000& \text { units } \
\hline \text { Sales price } & \$ 40& \text { per unit } \
\hline \text { Variable manufacturing costs } & \$ 20& \text { per unit } \
\hline \text { Fixed manufacturing costs } & \$ 1,000,000 &\text { per year } \
\hline \text { Variable selling and administrative costs } & \$ 5 &\text { per unit } \
\hline \text { Fixed selling and administrative costs } & \$ 500,000 &\text { per year } \
\hline
\end{array}$$ Paradiso receives an offer to produce 6,000 dolls for a special event.This is a one-time opportunity during a period when the company has excess capacity.What is the minimum sales price the company should accept for the order?

Quizplus · Accepted Answer

The minimum sales price should cover the variable costs per unit, which are $20 for manufacturing and $5 for selling and administrative, totaling $25. Fixed costs are not relevant as they are already covered by existing operations.

Paradiso Company Manufactures Dolls That Are Sold to Various Distributors