Dockwiller Inc. manufactures industrial components. One of its products, which is used in the construction of industrial air conditioners, is known as D53. Data concerning this product are given below:

The above per unit data are based on annual production of 8,000 units of the component. Direct labor is a variable cost

-The company has received a special, one-time-only order for 500 units of component D53. There would be no variable selling expense on this special order and the total fixed manufacturing overhead and fixed selling and administrative expenses of the company would not be affected by the order. Assuming that Dockwiller has excess capacity and can fill the order without cutting back on the production of any product, what is the minimum price per unit below which the company should not accept the special order?
A)$67 per unit
B)$30 per unit
C)$150 per unit
D)$47 per unit

Question

Dockwiller Inc. manufactures industrial components. One of its products, which is used in the construction of industrial air conditioners, is known as D53. Data concerning this product are given below:

The above per unit data are based on annual production of 8,000 units of the component. Direct labor is a variable cost

-The company has received a special, one-time-only order for 500 units of component D53. There would be no variable selling expense on this special order and the total fixed manufacturing overhead and fixed selling and administrative expenses of the company would not be affected by the order. Assuming that Dockwiller has excess capacity and can fill the order without cutting back on the production of any product, what is the minimum price per unit below which the company should not accept the special order?
A)$67 per unit 
B)$30 per unit 
C)$150 per unit 
D)$47 per unit

Quizplus · Accepted Answer

Since there are no variable selling expenses and the total fixed costs would not be affected, we only need to consider the variable costs associated with the production of the 500 units. Let's assume that the variable cost per unit of component D53 is $60. This means that the total variable cost of producing 500 units would be:

$60 x 500 = $30,000

Therefore, the company should not accept the special order if the selling price is less than $30 per unit, since any price below this would not cover the variable costs and result in a loss. Answer B is the only choice that falls below this threshold.