Preston Wade, a local craftsman, normally sells his handcrafted wooden birdhouse

Question

Preston Wade, a local craftsman, normally sells his handcrafted wooden birdhouses for $88 each. Preston has the capacity to produce as many as 50 birdhouses a week. In a normal week, Preston makes 20 birdhouses with the following costs per unit:

Direct materials
$ 5.00
Direct labor
$20.00
Variable overhead
$ 4.00
Fixed overhead
$ 2.00
Refer to the Preston Wade information above. Preston has received a special order from a local plant nursery for 25 birdhouses. The nursery wishes to have the birdhouses engraved with their own logo, therefore, the order would require the rental of a special engraving tool at a cost of $200. Preston requires a minimum $2,000 profit on any special order.
The minimum price per birdhouse that Preston should charge the nursery is:
Answer
a. $80
b. $89
c. $117
d. $119

Explanation / Answer

DM = 25*5 = 125 DL = 25*20 = 500 VOH = 25*4 = 100 FOH = 0 Logo machine = 200 Profit = 2000 Total = $2925 $2925/25 bird houses = $117 per house Answer: C, $117

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