Question

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?

Answer 1

Answer: So, the minimum selling price will be $26.

Explanation:

The fixed cost are incurred regardless of the production volume, they're tangential to decision making.

Now,  

Minimum selling price that should be accepted for the product is given as follow:

Variable manufacturing cost = $20

Variable selling and admin  = $6

Total cost incurred = Variable manufacturing cost + Variable selling and admin = $26.

So, the minimum selling price will be $26.

Answer 2

Answer:

The answer is $26

Explanation:

Please see attachment.