Assume that Phoenix decides to accept the special order at a unit sales price that will add $400,000 per month to its operating income. The unit price of the special order will be:
A) $85.
B) $70.
C) $55.
D) Some other amount.

Question

Quizplus · Accepted Answer

To calculate the unit sales price of the special order that will add $400,000 per month to operating income, we need to use the contribution margin per unit.

Contribution margin per unit = selling price per unit - variable cost per unit

Let X be the unit sales price of the special order:

Contribution margin per unit = X - $35 = $50

Solving for X:

X - $35 = $50

X = $85

Therefore, the special order unit sales price would have to be $85 to add $400,000 to operating income. Since the company is willing to accept this order at a lower price, the best choice is C ($55) which is a price that would still provide additional operating income while being more competitive.

Assume That Phoenix Decides to Accept the Special Order at a Unit