Answer:
Indifferent special order price=$5.60
Explanation:
To determine whether or not Cork Company should accept the order, we will compare the variable cost of the order to the sales value . If the special order generates a positive contribution margin, then it should be accepted.'
The relevant cash flows to be considered here includes
1. Variable cost of the special order
2. Sales revenue from the special order.
Note that the fixed cost are general unavoidable costs which would be incurred either way. And therefore should not be considered .
variable cos per unit = 4.60 +1.00= 5.60
$
Sales revenue from special order
(7×6,000) 42,000
Variable cost (5.60× 6,000) <u> (33,600)</u>
Net income from special order <u> 8,400 </u>
A special order price that will produce a net income of zero is that which will make the Cork Company indifferent. And such price is that which equals to the variable cost of selling
Indifferent special order price = variable cost per unit = $5.60
Indifferent special order price=$5.60
