Marionette 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 70% of capacity for the other six months of the year.The company has provided the following data for the year:

Marionette receives an offer to produce 7000 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

Marionette 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 70% of capacity for the other six months of the year.The company has provided the following data for the year:

Marionette receives an offer to produce 7000 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

To find the minimum sales price that Marionette Company should accept for the order, we need to calculate the incremental cost of producing these 7000 additional dolls.

Incremental cost = variable cost per unit * number of units produced
= ($4 + $3 + $1) * 7000
= $56,000

Therefore, Marionette Company should accept an offer that covers at least the incremental cost of producing the additional dolls, which is $56,000.

Among the given options, only option D ($13) is greater than $56,000/7000 = $8, which is the variable cost per unit. Hence, the minimum sales price that the company should accept is $13.

Marionette Company Manufactures Dolls That Are Sold to Various Distributors