P Co. makes sonars for fishing boats. The following information is available abo

Question

P Co. makes sonars for fishing boats. The following information is available about the Model 70 product: The capacity for Model 70 is 2,000 units. Planned production and sales for the year is 1,500 units. The normal selling price is $175 per unit. P Co. has been asked to fulfill a special order of 400 units of Model 70. Due to some slight design changes, the variable manufacturing cost per unit would increase by $5. The company would also have to rent a special paint machine for the special order at a cost of $1,000 total. There would be no variable selling cost on the special order. P Co. will accept the special order if It increases operating income by $5,000. Based on the above information, what is the lowest unit price P Co. will accept for the special order?

Explanation / Answer

Incremental revenue(400×175) 70000 Less incremental cost: Variable manufacturing cost(105×400) 42000 Rent of machine 1000 Total incremental cost 43000 Incremental net operating income(70000-43000) 27000 Lowest price accepted by p company(43000/400) 107.50

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.