The Mighty Music Company produces and sells a desktop speaker for $100. The company has the capacity to produce 50,000 speakers each period. At capacity, the costs assigned to each unit are as follows: The company has received a special order for 500 speakers. If this order is accepted, the company will have to spend $15,000 on additional costs. Assuming that no sales to regular customers will be lost if the order is accepted, at what selling price will the company be indifferent between accepting and rejecting the special order?
$$\begin{array} { | l | l | }
\hline \text { Unit level costs } & \$ 45 \
\hline \text { Product level costs } & \$ 15 \
\hline \text { Facility level costs } & \$ 5 \
\hline
\end{array}$$

Question

The Mighty Music Company produces and sells a desktop speaker for $100. The company has the capacity to produce 50,000 speakers each period. At capacity, the costs assigned to each unit are as follows: The company has received a special order for 500 speakers. If this order is accepted, the company will have to spend $15,000 on additional costs. Assuming that no sales to regular customers will be lost if the order is accepted, at what selling price will the company be indifferent between accepting and rejecting the special order?
$$\begin{array} { | l | l | } 
\hline \text { Unit level costs } & \$ 45 \
\hline \text { Product level costs } & \$ 15 \
\hline \text { Facility level costs } & \$ 5 \
\hline
\end{array}$$

Quizplus · Accepted Answer

The company should cover the unit level costs and additional costs. Unit level costs are $45 per unit, and additional costs are $15,000 for 500 units, which is $30 per unit. Therefore, the selling price should be $45 + $30 = $75 to be indifferent.

The Mighty Music Company Produces and Sells a Desktop Speaker