Question

The Clear Music Company produces and sells a desktop speaker for $320. The company has the capacity to produce 72,000 speakers each period. At capacity, the costs assigned to each unit are as follows: Unit level costs $ 155 Product level costs $ 37 Facility level costs $ 27 The company has received a special order for 23,000 speakers. If this order is accepted, the company will have to spend $32,000 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?

Answer 1

$156.39

Step-by-step explanation:

If the special order is accepted, the company will not have to incur additional product level and facility level costs.

Hence,

Relevant cost for production is unit level cost = $155

If order accepted, then the company have to spend additional $32,000.

Additional cost per unit:

= Additional cost ÷ No. of units in special order

= $32,000 ÷ 23,000

= $1.39 per unit

Therefore,

Selling price will the company be indifferent between accepting and rejecting the special order:

= Relevant cost for production is unit level cost + Additional cost per unit

= $155 + $1.39

= $156.39