FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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The Melrose Corporation produces a single product, Product C. Melrose has the capacity to produce 108,000 units of Product C each year. If Melrose produces at capacity, the per unit costs to produce and sell one unit of Product C are as follows:
| Direct materials | $ | 33.30 | |
| Direct labor | $ | 24.60 | |
| Variable manufacturing |
$ | 18.70 | |
| Fixed manufacturing overhead | $ | 23.50 | |
| Variable selling expense | $ | 15.80 | |
| Fixed selling expense | $ | 9.90 | |
|
|
The regular selling price of one unit of Product C is $148.80. A special order has been received by Melrose from Moore Corporation to purchase 6,000 units of Product C during the upcoming year. If this special order is accepted, the variable selling expense will be reduced by 75%. Total fixed manufacturing overhead and fixed selling expenses would be unaffected except that Melrose will need to purchase a specialized machine to engrave the Moore name on each unit of product C in the special order. The machine will cost $10,800 and will have no use after the special order is filled. Assume that direct labor is a variable cost.
Assume that Melrose expects to sell 98,000 units of Product C to regular customers next year. At what selling price for the 6,000 units would Melrose be economically indifferent between accepting and rejecting the special order from Moore?
$80.85
$82.35
$102.85
$104.35
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