The regular selling price for one Nugget is $60. A special order has been receiv

Question

The regular selling price for one Nugget is $60. A special order has been received from the Summit Company to purchase 8,000 Nuggets next year. For this special order, the variable selling expense would be reduced by -30%. However, Hemlock would have to purchase a specialized machine to engrave the Summit's name on each Nugget in the special order. This machine would cost $12,000 and it would have no use after the special order was filled. If Hemlock can expect to sell 35,000 Nuggets next year through regular channels, at what special-order price from Summit should Hemlock be economically indifferent between either accepting or not accepting this special order? A. $ 41.30 B. $ 42.80 C. $ 47.30 D. $ 48.80 E. None of the above

Explanation / Answer

Direct Material 20 Direct Labor 10 Manufacturing O/H 5 Variable Selling 6.3 machine Cost 1.5 12000/8000 Indifferent Price 42.8 At $ 42.8 Hemlock wll be indifferent between either accepting or not accepting the special order The correct answer is B. $ 42.80

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