Question

operational, financing and Geneva Company manufactures dolls that are sold to various customers. The company works at full capacity for half the year to meet peak demand, and operates at 80% capacity for the other half of the year. The following information is provided: Units produced and sold 600,000 units Selling price $ 35 / unit Variable manufacturing costs $ 20 / unit Fixed manufacturing costs $ 1,200,000 / yr. Variable selling and administrative costs $ 6 / unit Fixed selling and administrative costs $ 950,000 / yr. Geneva receives a purchase order to make 5,000 dolls as a one-time event. The good news is that this order is during a period when Geneva does have excess capacity. What is the lowest selling price Geneva should accept for this purchase order? $35.00 $26.00 $29.50 $23.50

Answer 1

Answer:

The lowest selling price Geneva should accept for this purchase order is $26 per unit. So, the correct option is b.$26.00

Explanation:

For computing the lowest selling, following thing is need to be considered.

1.  Variable manufacturing cost

2. Variable selling and administrative cost

Other cost like selling price,  Fixed manufacturing costs, Fixed selling and administrative costs is not been considered because the fixed cost does not have any impact if the production level changes and the selling price is irrelevant.  So, these costs are not be taken in the computation part

Hence, the lowest selling price is equals to

=  Variable manufacturing cost  + Variable selling and administrative cost

= $20 + $6

= $26 per unit

Thus, the lowest selling price Geneva should accept for this purchase order is $26 per unit. So, the correct option is b.$26.00