Golden Generator Supply is approached by Mr. Stephen, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers. Golden Generator Supply has excess capacity. The following per unit data apply for sales to regular customers: Direct materials $190 Direct manufacturing labor 180 Variable manufacturing support 280 Fixed manufacturing support 140 Total manufacturing costs 790 Markup (10% of total manufacturing costs) 79 Estimated selling price $869 If Mr. Stephen wanted a long-term commitment, and not a one-time-only special order, for supplying this product, calculate the most likely price to be quoted assuming the markup remains the same? A. $869 B. $650 C. $370 D. $790

Question

Juan Rose

Business

20 January, 21:30

Golden Generator Supply is approached by Mr. Stephen, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers. Golden Generator Supply has excess capacity. The following per unit data apply for sales to regular customers: Direct materials $190 Direct manufacturing labor 180 Variable manufacturing support 280 Fixed manufacturing support 140 Total manufacturing costs 790 Markup (10% of total manufacturing costs) 79 Estimated selling price $869 If Mr. Stephen wanted a long-term commitment, and not a one-time-only special order, for supplying this product, calculate the most likely price to be quoted assuming the markup remains the same? A. $869 B. $650 C. $370 D. $790

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Answers (1)

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Elliana Sutton · Answer 1

A. $869

Explanation:

If it charges a price below of their full cos and mark-up it wouldn't be able to sustain it in the long-term

When company's receive a one-time-only then, they may be willing to charge a lower price to cover a portion of their fixed cost when there is spare capacity but, in long-term they will have to charge at full cost else, they will lose money