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7 years ago
Paradiso Company manufactures dolls that are sold to various distributors. The company produces at full capacity for six months each year to meet peak demand; the manufacturing facility operates at 80% of capacity for the other six months of the year. The company has provided the following data for the year:

No. of units produced and sold   400,000   units
Sales price   $40   per unit
Variable manufacturing costs   $20   per unit
Fixed manufacturing costs   $1,000,000   per year
Variable selling and administrative costs   $5   per unit
Fixed selling and administrative costs   $500,000   per year

Paradiso receives an offer to produce 6,000 dolls for a special event. This is a one-time opportunity during a period when the company has excess capacity. What is the minimum sales price the company should accept for the order?
A) $25
B) $20
C) $15
D) $40
Textbook 
Horngren's Financial & Managerial Accounting, The Financial Chapters

Horngren's Financial & Managerial Accounting, The Financial Chapters


Edition: 5th
Authors:
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#2
7 years ago
This was certainly a tough question, loving the expertise
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#3
3 years ago
Thanks!
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