Question

Last year, Dora, Inc. produced 70,000 widgets and incurred $210,000 of variable costs and $196,000 of fixed costs. Dora has received a special order from a foreign customer for 3,000 widgets. Dora has sufficient capacity to fill the order without jeopardizing regular sales. Dora would incur $3,150 in additional shipping charges to fulfill this special order. If Dora wants to break even on this order, what should the unit selling price be:

A : $4.05
B : $6.85
C : $5.80
D : $3.00

Answer 1

$4.05

Step-by-step explanation:

Answer 2

B : $6.85

Step-by-step explanation:

Because Dora, Inc. has enough capacity to fill the special order in excess of regular sales volume, the fixed cost of its remain unchanged at $196,000.

Widget variable cost per unit of Dora is 210,000/70,000 = $3

To break even on the special order, the respective total sales amount has to cover all related cost, including allocated fixed cost, variable cost as well as additional shipping charges. Putting all the numbers together, we have:

3,000 x P - 196,000 x (3,000/73,000) - 3 x 3,000 - 3,150 = 0 with P is the selling price.

Solve the equation we get P = 6.73. Option answer A,C or D will result in loss for this special order. So, the suitable answer is B.