Question

Martin Company incurred the following costs for 70,000 units: Variable costs $420,000 Fixed costs 392,000 Martin has received a special order from a foreign company for 3,000 units. There is sufficient capacity to fill the order without jeopardizing regular sales. Filling the order will require spending an additional $6,300 for shipping. If Martin wants to break even on the order, what should the unit sales price be?

Answer 1

Sales price = $8.1

Step-by-step explanation:

The units sale price should be that that equated the total revenue to the the total relevant cost of the special order

The relevant cost of the special order includes;

1. Variable cost

2. Additional shipping cost

Note the fixed costs are irrelevant for this decision because they would be incurred either way

Variable cost per unit = Total variable cost /Number of unit

= 420,000/70,000 units = $6 per unit

$

Total variable cost of special order

( 3,000× $6) = $18,000

Shipping cost 6,300

Total relevant costs of special order. 24,300

Minimum Sales price = Total relevant cost /number of units

Sales price = $24,300/3,000 units =$8.1

Sales price = $8.1