Question

Eley Corporation produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 52,000 units per month is as follows:

Direct materials	$30.00
Direct labor	$8.00
Variable manufacturing overhead	$3.60
Fixed manufacturing overhead	$12.80
Variable selling & administrative expense	$3.10
Fixed selling & administrative expense	$6.30

The normal selling price of the product is $52.30 per unit.
An order has been received from an overseas customer for 3,200 units to be delivered this month at a special discounted price. This order would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $0.10 less per unit on this order than on normal sales.

Direct labor is a variable cost in this company.

Suppose there is not enough idle capacity to produce all of the units for the overseas customer and accepting the special order would require cutting back on production of 320 units for regular customers. The minimum acceptable price per unit for the special order is closest to:

rev: 10_17_2016_QC_CS-66156, Noreen 4e Recheck 2017-16-03

$45.36

$52.30

$44.60

$44.70

Answer 1

The minimum acceptable price per unit for the special order is $44.60

Calculation of Minimum acceptable price
Direct materials	$       30.00
Direct labor	$         8.00
Variable manufacturing overhead	$         3.60
Variable selling & administrative expense(3.1-0.10)	$         3.00
Minimum acceptable price	$       44.60

Fixed cost remains the same even if order is not accepted. So fixed cost becomes irrelevant for any calculation on minimum price.