Landor Appliance Company makes and sells electric fans. Each fan regularly sells
ID: 2435711 • Letter: L
Question
Landor Appliance Company makes and sells electric fans. Each fan regularly sells for $42. The following cost data per fan is based on a full capacity of 150,000 fans produced each period.Direct materials = $8
Direct labor = $9
Manufacturing overhead
(70% variable and 30% unavoidable fixed) = $10
A special order has been received by Landor for a sale of 25,000 fans to an overseas customer. The only selling costs that would be incurred on this order would be $4 per fan for shipping. Landor is now selling 120,000 fans through regular channels each period. What should Landor use as a minimum selling price per fan in negotiating a price for this special order?
$28
$27
$31
$24
show work please
Explanation / Answer
Variable costs of making the additional fans would be 8+9+10*0.7+4= 28. So $28 should be the minimum selling price of the order. (Actually it should be higher than this because there are some downsides to taking special orders at lower prices. Specifically, one is that your regular customers may find out and demand a lower price).
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