Stella Corporation makes and sells electric fans. Each fan regularly sells for $42. The following cost data per fan is based on a full capacity of 150,000 fans produced each period: Direct materials $ 8 Direct labor $ 9 Manufacturing overhead (70% variable and 30% unavoidable fixed) $10 A special order has

1 answer
Question:

Stella Corporation makes and sells electric fans. Each fan regularly sells for $42. The following cost data per fan is based on a full capacity of 150,000 fans produced each period:
Direct materials $ 8
Direct labor $ 9
Manufacturing overhead (70% variable and 30% unavoidable fixed) $10
A special order has been received by Stella Corp. for a sale of 25,000 fans to an overseas customer. The only selling costs that would be incurred on this order would be $4 per fan for shipping. Stella Corp. is now selling 120,000 fans through regular channels each period. What should Stella Corp. use as a minimum selling price per fan in negotiating a price for this special order?
a. $27 per fan
b. $24 per fan
c. $28 per fan
d. $31 per fan

Answers

Answer:c. $28 per fanExplanation:Consider the Costs to provide for the Special Order. Exclude the fixed overheads as these are already absorbed in the current production activity of 120,000 fans.As a minimal the Stella Corp. should be able to cover the variable costs resulting from the special offer calculated as belowCosts to provide for the special Order. per fanDirect materials                                            $ 8 .00Direct labor                                                   $ 9.00Manufacturing Overhead $10 × 70%          $ 7.00Shipping Costs                                             $ 4.00Total                                                              $28.00Therefore, Stella Corp. should use $28.00 as a minimum selling price per fan in negotiating a price for this special order.

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