Answer (A) is correct . Given no excess capacity, the price must cover the incremental costs. The incremental costs for KB-96 equal $50 ($20 direct materials + $15 direct labor + $12 variable overhead + $3 shipping and handling). Opportunity cost is the benefit of the next best alternative use of scarce resources. Because acceptance of the special order would cause the company to forgo a contribution margin of $10,000, that amount must be reflected in the price. Hence, the minimum unit price is $60 [$50 unit incremental cost + ($10,000 lost CM ¡Â 1,000?units)]. Answer (B) is incorrect because This amount includes fixed selling and administrative costs. Answer (C) is incorrect because This amount includes fixed manufacturing overhead but omits shipping and handling costs. Answer (D) is incorrect because This amount is based on full absorption cost.
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