Question

Crystal Company has received a special order for 2,000 units of its product. The product normally sells for $200 and has the following manufacturing costs: cost per unit direct materials $60, direct labor $40, variable manufacturing overhead $30, fixed manufacturing overhead $20, total unit cost $150. Crystal is currently operating at full capacity and cannot fill the order without harming normal production and sales. What minimum unit price should Crystal charge to earn an incremental profit of $50,000?

Answer 1

Crystal Company should charge a minimum unit price of $175 to earn an incremental profit of $50,000 on the special order.

Step-by-step explanation:

To determine the minimum unit price Crystal Company should charge to earn an incremental profit of $50,000, we need to calculate the total incremental cost for the special order. The total incremental cost can be found by subtracting the normal unit cost of $150 from the desired incremental profit of $50,000, and then dividing the result by the number of units in the special order.

Incremental profit per unit = Incremental profit / Number of units

Incremental profit per unit = $50,000 / 2000 units = $25

Therefore, Crystal Company should charge a minimum unit price of $175 ($150 + $25) to earn an incremental profit of $50,000 on the special order.