The Metal Shop produces 1.8 million metal fasteners a year for industrial use.At this level of production,its total fixed costs are $320,000 and its total costs are $522,000.The firm can increase its production by 5 percent,without increasing either its total fixed costs or its variable costs per unit.A customer has made a one-time offer for an additional 50,000 units at a price per unit of $0.10.Should the firm sell the additional units at the offered price? Why or why not?

Question

Quizplus · Accepted Answer

Variable cost per unit = ($522,000 - $320,000)/1,800,000 = $0.112 per unitThe marginal cost per unit will be $0.112 since the variable cost per unit will be unchanged. The order should not be accepted since the marginal cost per unit exceeds the offered price.

The Metal Shop Produces 1