The Immanuel Company has just obtained a request for a special order of 6,000 ji

Question

The Immanuel Company has just obtained a request for a special order of 6,000 jigs to be shipped at the end of the month at a selling price of $7 each. The company has a production capacity of 90,000 jigs per month with total fixed production costs of $144,000. At present, the company is selling 80,000 jigs per month through regular channels at a selling price of $11 each. For these regular sales, the cost for one jig is: If the special order is accepted, Immanuel will not incur any selling expense; however, it will incur shipping costs of $0.30 per unit. Total fixed production cost would not be affected by this order. At what selling price per unit should Immanuel be indifferent between accepting or rejecting the special offer? A) $7.40 B) $7.70 C) $6.40 D) $4.90

Explanation / Answer

Selling price per unit = Variable production cost + shipping cost per unit

= $4.60 + 0.30

= $4.90 p.u. i.e. option D

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