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Quentin Products Ltd
Quentin Products Ltd. produces a single product. The following is a summary of the cost to produce one unit:
| Cost per unit | |
|---|---|
| Direct materials | $15.00 |
| Direct labor | 10.00 |
| Variable overhead | 7.50 |
| Variable selling expenses | 6.25 |
| Fixed overhead | 1.00 |
| Total cost | $39.75 |
The fixed overhead cost of $1 per unit is based on the expected production of 25,000 units. If more than 25,000 units are produced, Quentin will incur an additional $125,000 of fixed overhead costs. Fixed selling and administrative expense is $50,000, regardless of the number of units sold. Quentin expects to sell 18,000 units in the coming year.
Quentin has been invited to bid on a contract to supply a special order of 10,000 units. Quentin expects to incur only $1 per unit in variable selling expenses to fill the special order; all other variable costs will remain unchanged. The 10,000 units will be added to Quentin's regular production schedule. What is the acceptable minimum price that Quentin should bid?
a. $33.50
b. $45.00
c. $46.00
d. $51.25
Expert Solution
What is the acceptable minimum price that Quentin should bid?
| Additional Fixed Overhead | 125,000 |
| Divided by: Number of Special Order | 10,000 |
| Additional Fixed Expenses per Special Order | 12.50 |
| Direct Materials | 15 |
| Direct Labor | 10 |
| Variable Overhead | 7.50 |
| Variable Selling Expenses | 1 |
| Acceptable Minimum Price | 46 |
Answer:
c. $46.00
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