Question

Cara Industries incurred the following costs for 50,000 units:


Variable costs $90,000
Fixed costs 120,000


Cara has received a special order from a foreign company for 5,000 units. There is sufficient capacity to fill the order without jeopardizing regular sales. Filling the order will require spending an additional $4,250 for shipping.

If Cara wants to break even on the order, what should the unit sales price be?

A. $4.2

B. $5.05

C.$1.8

D. $2.65

Answer 1

Answer:

Selling price= $2.65

Explanation:

Because it is a special offer, and there is unused capacity, we will take into account only the incremental fixed costs.

First, we need to calculate the unitary variable cost:

Unitary variable cost= 90,000/50,000= $1.8

Now, we can determine the total unitary cost and the selling price per unit:

Total unitary cost= (4,250/5,000) + 1.8= $2.65

Selling price= $2.65