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? $35.00 $26.00 $29.50 $23.50

Question

Albert Payne

Business

8 September, 20:43

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? $35.00 $26.00 $29.50 $23.50

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Answers (1)

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Jamar Sampson · Answer 1

The lowest selling price Geneva should accept for this purchase order is $26 per unit.

Explanation:

Since in the given question, all type of cost is given. But for computing the lowest selling price for accepting the purchase order, the following things is need to be considered.

1. Variable manufacturing cost = $20 per unit

2. Variable Selling and administrative cost = $6 per unit.

The selling price is a sum of all type of expenses. But in the given question, the selling price is $35 per unit which is high than a sum of total cost.

So the selling price is = Variable manufacturing cost + Variable Selling and administrative cost

= $20 per unit + $6 per unit

= $ 26 per unit

Hence, the lowest selling price Geneva should accept for this purchase order is $26 per unit.