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JCN Industries normally produces and sells 5,000 keyboards for personal computers each month.Variable manufacturing costs amount to $25 per unit,and fixed costs are $146,000 per month.The regular sales price of the keyboards is $86 per unit.JCN has been approached by a foreign company that wants to purchase an additional 1,000 keyboards per month at a reduced price.Filling this special order would not affect JCN 's regular sales volume or fixed manufacturing costs.
-On the basis of the above information only,which of the following is not true?
A)At the 5,000-unit level of production,JCN's average cost per unit is $54.20.
B)At the 6,000-unit level of production,JCN's average cost per unit is $49.33.
C)It would not be profitable for JCN to consider the special order at a price less than $49 per unit.
D)The fixed manufacturing costs of $146,000 are not relevant to this decision regarding the special order.

Question

Quizplus · Accepted Answer

To determine the profitability of the special order, JCN should only consider the variable costs associated with producing the additional 1,000 keyboards. The incremental cost per unit for producing 6,000 units, including the special order, is $25 (variable costs) + ($146,000/6,000 units) = $49.33. Therefore, the special order should be accepted only if the per-unit price is greater than $49.33. Choice C is not true because it suggests that JCN should not consider the special order at a price less than $49, but in fact, it should not consider the special order at a price less than $49.33.

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