Question

Landor Appliance Corporation makes and sells electric fans. Each fan regularly sells for $42. The following cost data per fan is based on a full capacity of 150,000 fans produced each period. Direct materials $ 8 Direct labor $ 9 Manufacturing overhead (70% variable and 30% unavoidable fixed) $ 10 A special order has been received by Landor for a sale of 25,000 fans to an overseas customer. The only selling costs that would be incurred on this order would be $4 per fan for shipping. Landor is now selling 120,000 fans through regular channels each period. Assume that direct labor is an avoidable cost in this decision. What should Landor use as a minimum selling price per fan in negotiating a price for this special order

Answer 1

Answer:

Lowest selling price= $28

Explanation:

Giving the following information:

Direct materials $8

Direct labor $9

Variable manufacturing overhead= $7

A special order has been received by Landor for a sale of 25,000 fans to an overseas customer.

The only selling costs that would be incurred on this order would be $4 per fan for shipping.

Because it is a special offer, and there is unused capacity, we will not take into account the fixed costs.

The minimum selling price is the one that equals the unitary variable cost.  It is not a price sustainable long term.

Unitary variable cost= 8 + 9 + 7 + 4= $28

Lowest selling price= $28