Answer (C) is correct . In a special order situation, a company with excess capacity has a $0 opportunity cost of filling the special order. Accordingly, it should be willing to sell the product at a price that exceeds its incremental costs. The incremental (relevant) costs for Pontotoc equal the variable costs of $100 ($40 direct materials + $30 direct labor + $24 variable overhead + $6 variable selling costs). Thus, if the selling price is in excess of $100, the company should be willing to accept the order.
Answer (A) is incorrect because Given excess capacity, the total absorption cost of $180 per unit is not relevant.
Answer (B) is incorrect because This amount is the normal operating margin, not a cost.
Answer (D) is incorrect because This amount includes the fixed manufacturing overhead, an irrelevant cost.
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Pontotoc received a special, one-time order for 1,000 of the above parts. Assuming Pontotoc has excess capacity, the minimum unit price for this special, one-time order is in excess of