Use the following to answer questions:
Hoffman Corp. currently sells 40,000 dental tools to its normal customers, but it has a capacity to produce 50,000 tools. Its product sells for $30 per tool and the variable costs incurred in manufacturing and selling the product are as follows on a per tool basis:
Direct materials - $8; Direct labor - $4; Sales commission - $2.
A customer has proposed a special order to purchase 10,000 tools at a special price of $20 per unit. If Hoffman accepts the order, the company would not have to pay its sales people their normal commission of $2 per unit, but the company would incur a shipping cost of $3 per unit.
-What is the minimum price per unit below which Hoffman should reject the order?
A) $12
B) $15
C) $31
D) $33

Question

Quizplus · Accepted Answer

The minimum price per unit should cover the variable costs incurred in manufacturing and selling the product. For the special order, the variable costs are direct materials ($8), direct labor ($4), and the additional shipping cost ($3), totaling $15 per unit. Since the sales commission of $2 per unit is not incurred for this special order, it is not included in the calculation. Therefore, any price below $15 would result in a loss on a per-unit basis for the special order.

Use the Following to Answer Questions