Question

Golden Generator Supply is approached by Mr.​ Stephen, a new​ customer, to fulfill a large​ one-time-only special order for a product similar to one offered to regular customers. Golden Generator Supply has excess capacity. The following per unit data apply for sales to regular​ customers: Direct materials ​$190 Direct manufacturing labor 180 Variable manufacturing support 280 Fixed manufacturing support 140 Total manufacturing costs 790 Markup​ (10% of total manufacturing​ costs) 79 Estimated selling price ​$869 If Mr. Stephen wanted a​ long-term commitment, and not a​ one-time-only special​ order, for supplying this​ product, calculate the most likely price to be quoted assuming the markup remains the​ same? A. ​$869 B. ​$650 C. ​$370 D. ​$790

Answer 1

A. ​$869

Step-by-step explanation:

If it charges a price below of their full cos and mark-up it wouldn't be able to sustain it in the long-term

When company's receive a one-time-only then, they may be willing to charge a lower price to cover a portion of their fixed cost when there is spare capacity but, in long-term they will have to charge at full cost else, they will lose money