Sprint sells phones that have a per unit variable production costs of $15 and fixed costs of $4 (based on 8,000 units). Sprint has excess capacity to accept a special order up to 500 units.
What is the minimum price that could be charged for this special order?
Hint Given: Variable costs are relevant! Answers are not $9,500 nor $7,500
**This is the only information Given in the book**
2007-10-27 08:03:18 · 1 answers · asked by Anonymous in Business & Finance ➔ Other - Business & Finance
If based on 8,000 units the fixed cost per unit is $4, fixed costs total $32,000. There is excess capacity for additional 500 units. That means up to 8,500 units, the fixed costs are still $32,000, or $3.76 per unit. With variable cost of $15 per unit, total cost for the additional 500 units is $9,380. If you charge $9,380, you'll break even on the additional 500 units. Any dollar you charge above that will be a dollar added to profit.
2007-10-28 01:46:22 · answer #1 · answered by Sandy 7 · 0⤊ 0⤋