Phillips Inc. manufactures industrial components. One of its products, which is
ID: 2378218 • Letter: P
Question
Phillips Inc. manufactures industrial components. One of its products, which is used in the construction
of industrial air conditioners, is known as K65. Dat concerning this product are given below:
Per Unit
Selling price $180
Direct materials $29
Direct labor $5
Variable manufacturing overhead $4
Fixed manufacturing overhead $21
Variable selling expense $2
Fixed selling and administrative expense $17
The above per unit data are based on annual production of 4,000 units of the component. Direct labor can
be considered to be a variable cost. (Source: CMA, adapted)
The company has received a special, one-time-only order for 500 units of component K65. 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 wouldn't be affected by the order.
Assuming that Kavahas 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 shouldn't go?
A. $$78
B. $59
C. $38
D $180
Explanation / Answer
Per unit additional cost = Total variable cost per unit for special order = Direct materials $29 + Direct labor $5 + Variable manufacturing overhead $4 = $38 = Answer c
If the company does not go below it's aadditional cost, then there is no loss.
I am sure of this. All the best