Mckerchie Inc. manufactures industrial components. One of its products, which is used in the construction of industrial air conditioners, is known as G62. Data concerning this product are given below: The above per unit data are based on annual production of 9,000 units of the component. Direct labor can be considered to be a variable cost.
-The company has received a special,one-time-only order for 300 units of component G62.There would be no variable selling expense on this special order and the total fixed manufacturing overhead and fixed selling and administrative expenses of the company would not be affected by the order.However,assume that Mckerchie has no excess capacity and this special order would require 50 minutes of the constraining resource,which could be used instead to produce products with a total contribution margin of $6,900.What is the minimum price per unit on the special order below which the company should not go?
A)$90
B)$23
C)$49
D)$78

Question

Mckerchie Inc. manufactures industrial components. One of its products, which is used in the construction of industrial air conditioners, is known as G62. Data concerning this product are given below:  The above per unit data are based on annual production of 9,000 units of the component. Direct labor can be considered to be a variable cost.
-The company has received a special,one-time-only order for 300 units of component G62.There would be no variable selling expense on this special order and the total fixed manufacturing overhead and fixed selling and administrative expenses of the company would not be affected by the order.However,assume that Mckerchie has no excess capacity and this special order would require 50 minutes of the constraining resource,which could be used instead to produce products with a total contribution margin of $6,900.What is the minimum price per unit on the special order below which the company should not go?
A)$90 
B)$23 
C)$49 
D)$78

Quizplus · Accepted Answer

The minimum price per unit on the special order below which the company should not go is $49. This is because the company would need to cover the variable cost of producing the units, which is $23 per unit, and the opportunity cost of using the constraining resource, which is $26 per unit ($6,900 / 300 units).