Question

Northern Optical ordinarily sells the X-lens for $50. The variable production cost is $10, the fixed production cost is $18 per unit, and the variable selling cost is $1. A customer has requested a special order for 10,000 units of the X-lens to be imprinted with the customer’s logo. This special order would not involve any selling costs, but Northern Optical would have to purchase an imprinting machine for $60,000. What is the rock bottom minimum price below which Northern Optical should not go in its negotiations with the customer? *

Answer 1

Answer:

$34

Explanation:

The minimum price to accept for the special order is the one that takes into consideration the cost of buying imprinting machine at the cost of $60,000.

The minimum price would contain variable cost of $10,fixed production cost of $18 ,$0 variable selling cost but includes  $6 per unit of the imprinting machine cost i.e $60,000/10,000

The cost sums to be $34 i.e $10+$18+$0+$6.

The fixed cost per unit would also have been excluded if it was confirmed that the company has idle capacity