Geneva Company manufactures dolls that are sold to various customers. The company works at full capacity for half the year to meet peak demand, and operates at 80% capacity for the other half of the year. The following information is provided: Geneva receives a purchase order to make 5,000 dolls as a one-time event. The good news is that this order is during a period when Geneva does have sufficient excess capacity. What is the lowest selling price Geneva should accept for this purchase order?
A) $35.00
B) $26.00
C) $29.50
D) $23.50
E) $25.00

Question

Geneva Company manufactures dolls that are sold to various customers. The company works at full capacity for half the year to meet peak demand, and operates at 80% capacity for the other half of the year. The following information is provided:  Geneva receives a purchase order to make 5,000 dolls as a one-time event. The good news is that this order is during a period when Geneva does have sufficient excess capacity. What is the lowest selling price Geneva should accept for this purchase order?
A) $35.00 
B) $26.00 
C) $29.50 
D) $23.50 
E) $25.00

Quizplus · Accepted Answer

Variable manufacturing costs per unit + Variable selling and administrative costs per unit = $20 + $6 = $26. The selling price should be greater than all variable costs.

Geneva Company Manufactures Dolls That Are Sold to Various Customers