A. Because Gardner is at full capacity manufacturing only XR-2000, they would need to pull machine hours away from XR-2000 to produce KT-6500. Therefore, the minimum price they should charge would be equal to the variable cost of KT-6500 + the contribution margin on the sacrificed units of XR-2000.The variable costs for KT-6500 are $50 ($27 material + $12 direct labor + $6 variable overhead + $5 variable selling & administrative). The total variable cost for 1,000 units would be $50,000.The contribution margin on the sacrificed units of XR-2000 is an opportunity cost that needs to be included. Each unit of KT-6500 requires 3 hours of machine time, so for 1,000 units, Gardner would have to pull 3,000 hours away from producing XR-2000. 3,000 hours divided by the 4 hours used to produce 1 unit of XR-2000 means Gardner would be giving up 750 units of XR-2000. Contribution margin is calculated as sales – variable costs. For XR-2000, the selling price is $105 and variable costs are $43 ($24 material + $10 direct labor + $5 variable overhead + $4 variable selling & administrative), which is a $62 contribution margin per unit. 750 units at a contribution margin of $62 per unit is $46,500 that would be given up in order to produce KT-6500.$50,000 of total variable cost for 1,000 units of KT-6500 + $46,500 of lost contribution margin for XR-2000 equals $96,500 total cost, or $96.50 per unit. Therefore, $96.50 per unit is the minimum price that Gardener should charge.

B. This is the material, direct labor, variable overhead and fixed overhead cost of one unit of KT-6500 (27 + 12 + 6 + 48). The fixed overhead cost should not be included, while variable selling and administrative costs plus an opportunity cost for the units of XR-2000 that cannot be manufactured need to be included.

C. This is the total manufacturing, selling and administrative costs (fixed and variable) for one unit of KT-6500. However, the fixed costs should not be included, and an opportunity cost for the units of XR-2000 that cannot be produced should be included.

D. This is the normal selling price, but not necessarily the minimum unit price that should be charged for this special order.