Mazeppa Corporation sells relays at a selling price of $28 per unit. The company
ID: 2426128 • Letter: M
Question
Mazeppa Corporation sells relays at a selling price of $28 per unit. The company's cost per unit, based on full capacity of 160,000 units, is as follows:
Mazeppa has been approached by a distributor in Montana offering to buy a special order consisting of 30,000 relays. Mazeppa has the capacity to fill the order. However, it will incur an additional shipping cost of $2 for each relay it sells to the distributor.
Assume that Mazeppa is currently operating at a level of 100,000 units. What unit price should it charge the distributor if it wishes to increase operating income by $3 for each unit included in the special order?(Do not round intermediate calculations.)
Assume that Mazeppa is currently operating at full capacity. To fill the special order, regular customers will have to be turned away. Now what unit price should it charge the distributor if it wishes to increase total operating income by $60,000 more than it would be without accepting the special order? (Do not round intermediate calculations.)
Mazeppa Corporation sells relays at a selling price of $28 per unit. The company's cost per unit, based on full capacity of 160,000 units, is as follows:
Explanation / Answer
1) Variable cost $20 + $2 addittional shipping cost = $22 per unit
hence selling price should be $22+$3 = $25 per unit
2)Without special ordeer contribtion = $28 - $20 = 8
income at full capacity 160,000 *8 - less fixed cost 480,000 = $800,000
total income required with special order = 860,000
60,000 units will be sold at old price and 100,000 at new price
let price of new order be x
60,000*8 + 100,000 (x-22) = 480,000 + 860,000
hence x=$30.60 per unit
1) Variable cost $20 + $2 addittional shipping cost = $22 per unit
hence selling price should be $22+$3 = $25 per unit
2)Without special ordeer contribtion = $28 - $20 = 8
income at full capacity 160,000 *8 - less fixed cost 480,000 = $800,000
total income required with special order = 860,000
60,000 units will be sold at old price and 100,000 at new price
let price of new order be x
60,000*8 + 100,000 (x-22) = 480,000 + 860,000
hence x=$30.60 per unit