Donellan Company produces a special gear used in automatic transmissions. Each gear sells for $30, and the company sells approximately 500,000 gears each year. Unit cost data for the year follows: Donellan has received an offer from a foreign manufacturer to purchase 25,000 gears. Domestic sales would be unaffected by this transaction. If the offer is accepted, variable distribution costs will increase $1.00 per gear for insurance, shipping, and import duties. The relevant unit cost to a pricing decision on this offer is:
A)$18.00.
B)$20.00.
C)$24.00.
D)$26.00.

Question

Donellan Company produces a special gear used in automatic transmissions. Each gear sells for $30, and the company sells approximately 500,000 gears each year. Unit cost data for the year follows:  Donellan has received an offer from a foreign manufacturer to purchase 25,000 gears. Domestic sales would be unaffected by this transaction. If the offer is accepted, variable distribution costs will increase $1.00 per gear for insurance, shipping, and import duties. The relevant unit cost to a pricing decision on this offer is:
A)$18.00. 
B)$20.00. 
C)$24.00. 
D)$26.00.

Quizplus · Accepted Answer

11eb16ac_dffd_cc5d_984d_97a62cc3b35e_TB6154_00 The fixed manufacturing and distribution costs are irrelevant to the decision because they are not changed by the 25,000 gear order.

Donellan Company Produces a Special Gear Used in Automatic Transmissions