Haskins Company is currently operating at a loss of $15,000.The sales manager has received a special order for 5,000 units of product,which normally sells for $35 per unit.Costs associated with the product are: direct material,$6; direct labor,$10; variable overhead,$3; applied fixed overhead,$4; and variable selling expenses,$2.The special order would allow the use of a slightly lower grade of direct material,thereby lowering the price per unit by $1.50 and selling expenses would be decreased by $1.If Haskins wants this special order to increase the total net income for the firm to $10,000,what sales price must be quoted for each of the 5,000 units?
A)$23.50
B)$24.50
C)$27.50
D)$34.00

Question

Quizplus · Accepted Answer

Explanation:The correct answer is A: $23.50.To calculate the sales price that Haskins must quote for each of the 5,000 units, we need to determine the total cost of the special order and the desired net income.Total cost of special order:Direct material: 5,000 units x ($6 - $1.50) = $22,500Direct labor: 5,000 units x $10 = $50,000Variable overhead: 5,000 units x $3 = $15,000Applied fixed overhead: 5,000 units x $4 = $20,000Variable selling expenses: 5,000 units x ($2 - $1) = $5,000Total cost: $112,500Desired net income: $10,000Sales revenue: Total cost + Desired net income = $112,500 + $10,000 = $122,500Sales price per unit: Sales revenue / Number of units = $122,500 / 5,000 units = $23.50Therefore, Haskins must quote a sales price of $23.50 for each of the 5,000 units to increase the total net income for the firm to $10,000.

Haskins Company Is Currently Operating at a Loss of $15,000