McKerchie Inc. manufactures industrial components. One of its products, used in
ID: 2348267 • Letter: M
Question
McKerchie Inc. manufactures industrial components. One of its products, used in the construction of industrial air conditioners, is known as G62. Data concerning this product are given below:Per Unit
Selling price
$160
Direct materials
13
Direct labor
7
Variable manufacturing overhead
6
Fixed manufacturing overhead
29
Variable selling expense
2
Fixed selling and administrative expense
10
The above per unit data are based on annual production of 9,000 units of the component. Direct labor can be considered to be a variable cost.
The company has received a special, one-time-only order for 300 units of component G62. There would be no variable selling expense on this special order and the total fixed manufacturing overhead and fixed selling and administrative expenses of the company would not be affected by the order. Assuming that McKerchie has excess capacity and can fill the order without cutting back on the production of any product, what is the minimum price per unit on the special order below which the company should not go?
Explanation / Answer
Variable cost per unit = 13 + 7 + 6 + 2 = 28 So to offset the price of making the unit is 28, so company should not sell it below $28 per unit