Farnsworth Television makes and sells portable television sets. Each television regularly sells for $360. The following cost data per television are based on a full capacity of 20,000 televisions produced each period: Direct materials $ 65 Direct labor $ 50 Manufacturing overhead (70% variable, 30% unavoidable fixed) $ 60 A special order has been received by Farnsworth for a sale of 3,500 televisions to an overseas customer. The only selling costs that would be incurred on this order would be $14 per television for shipping. Farnsworth is now selling 8,500 televisions through regular distributors each period. What should be the minimum selling price per television in negotiating a price for this special order?

The minimum price must be able to cover the variable costs, therefore $142 is the absolute minimum.

Explanation:

Giving the following information:

The following cost data per television are based on full capacity of 20,000 televisions produced each period:

Direct materials $ 65

Direct labor $ 50

Manufacturing overhead (70% variable, 30% unavoidable fixed) $ 60

A special order has been received by Farnsworth for a sale of 3,500 televisions to an overseas customer. The only selling costs that would be incurred on this order would be $14 per television for shipping.

Because it is a special offer with an overseas consumer and there is unused capacity, we will not consider the fixed costs to make a better offer.

Unitary cost = 65 + 20 + 14 + (60*0.70) = $141

The minimum price must be able to cover the variable costs, therefore $142 is the absolute minimum.