Crandle Manufacturers Inc. is approached by a potential customer to fulfill a on
ID: 2399433 • Letter: C
Question
Crandle Manufacturers Inc. is approached by a potential customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. The company has excess capacity. The following per unit data apply for sales to regular customers:
Variable costs:
Direct materials $140
Direct labor 100
Manufacturing support 105
Marketing costs 55
Fixed costs:
Manufacturing support 175
Marketing costs 65
Total costs 640
Markup (50%) 320
Targeted selling price $960
For Crandle Manufacturers Inc., what is the minimum acceptable price of this special order?
Explanation / Answer
Answer
Minimum acceptable price of the special order = $400
Minimum acceptable price should recover at least variable cost of the product when firm has excess capacity..
Total variable costs are $400