Brand X Computers makes and sells computers.Each computer sells for $400.The following cost data per computer are based on a full capacity of 10,000 computers each period: $$\begin{array} { l r }
\text { Direct materials } & \$ 150 \
\text { Direct labor } & \$ 100 \
\text { Variable manufacturing overhead } & \$ 38 \
\text { Unavoidable fixed overhead } & \$ 12
\end{array}$$ Brand X is considering a special order for a sale of 2,500 computers to an overseas customer.The only selling costs that would be incurred for the order would be shipping charges of $15 per computer.Brand X is currently selling 7,500 computers through its regular orders.What should be the minimum selling price per computer in negotiating a price for the special order?
A)$303
B)$250
C)$300
D)$265
E)$315

Question

Brand X Computers makes and sells computers.Each computer sells for $400.The following cost data per computer are based on a full capacity of 10,000 computers each period: $$\begin{array} { l r } 
\text { Direct materials } & \$ 150 \
\text { Direct labor } & \$ 100 \
\text { Variable manufacturing overhead } & \$ 38 \
\text { Unavoidable fixed overhead } & \$ 12
\end{array}$$ Brand X is considering a special order for a sale of 2,500 computers to an overseas customer.The only selling costs that would be incurred for the order would be shipping charges of $15 per computer.Brand X is currently selling 7,500 computers through its regular orders.What should be the minimum selling price per computer in negotiating a price for the special order?
A)$303
B)$250
C)$300
D)$265
E)$315

Quizplus · Accepted Answer

The minimum selling price per computer for the special order should cover the variable costs and the additional shipping charges. The variable costs per computer are the sum of direct materials ($150), direct labor ($100), and variable manufacturing overhead ($38), which totals $288. Adding the shipping charges of $15 per computer, the total cost comes to $303. Therefore, the minimum selling price should be at least $303 to cover these costs. Fixed costs are not considered in the calculation for the minimum price of the special order because they are unavoidable and will be incurred regardless of the special order.

Brand X Computers Makes and Sells Computers Brand X Is Considering a Special Order for a Sale