The average total cost of producing Z-12 is $35 per unit. The average variable cost associated with the production of Z-12 is $12 per unit, of which $2 is manufacturing overhead. The normal selling price of Z-12 is $50 per unit. If excess capacity exists, a special order for Z-12 will increase net operating income if it is priced at least:
A) $50 per unit.
B) $35 per unit.
C) $12 per unit.
D) $10 per unit.

Question

Quizplus · Accepted Answer

The special order will increase net operating income if it covers the average variable cost of $12 per unit, as fixed costs are already covered by existing production.

The Average Total Cost of Producing Z-12 Is $35 Per