Mikaelabelle Products sells pr oduct A at a selling price of $40 per unit. Mikae
ID: 2573370 • Letter: M
Question
Mikaelabelle Products sells pr
oduct A at a selling price of $40 per unit.
Mikaelabelle’s cost per unit based on the full capacity of 500,000 units is as follows:
Direct materials $ 6
Direct labor 3
Indirect manufacturing (60% of which is fixed)
10
$19
A one-time-only special order offering to
buy 50,000 units was received from an overseas
distributor. The only other cost
s that would be incurred on th
is order would be $4 per unit
for shipping. Mikaelabelle has sufficient ex
isting capacity to manufacture the additional
units. In negotiating a price for the special or
der, Mikaelabelle shoul
d consider that the
minimum selling price per unit should be
a. $17.
b. $19
c. $21.
d. $23.
Explanation / Answer
Option a is correct= $17
Explanation:
Relevant costs are:
Variable expenses:
Direct material=$6
Direct labour=$3
Indirect manufacturing (40%×$10)=$4
Shipping=$4
Total=$17 per unit