Question

Martin company incurred the following costs for 70,000 units: variable costs- $42,000; fixed costs- $392,000. Martin has received a special order from a foreign company for 3000 units. There is sufficient capacity to fill the order without jeopardizing regular sales. Filling the order would require spending an additional $6300 for shipping. What selling price per unit should be set by the company if it wants to break even on the order

Answer 1

To break even on the order, the selling price per unit should be $2.70.

Step-by-step explanation:

To determine the selling price per unit needed to break even on the order, we need to calculate the average variable cost per unit and add it to the shipping cost per unit. The average variable cost per unit is calculated by dividing the total variable costs by the number of units. In this case, the total variable costs are $42,000 and the number of units is 70,000, so the average variable cost per unit is $0.60.

Next, we add the shipping cost per unit, which is $6,300 divided by the number of units in the order (3,000), resulting in a shipping cost per unit of $2.10. Finally, we add the average variable cost per unit and the shipping cost per unit to get the selling price per unit needed to break even. In this case, the selling price per unit should be $0.60 + $2.10 = $2.70.