Question

10. Martin Company incurred the following costs for 70,000 units: Variable costs $420,000 Fixed costs 392,000 Martin has received a special order from a foreign como ficient capacity to fill the order without jeopardizing regular sales. order will require spending an additional $6,300 for shipping. There is sufficient capacity Filling the order will require sp to break even on the order, what should the unit sales price be? If Martin wants to break even A) $6.00 B) $8.10 C) $11.60 D) $13.70

Answer 1

Solution:
	Answer is B) $8.10
Working Notes:
	Variable cost per unit = Total variable cost/ Total units
	Variable cost per unit = 420,000/ 70,000
	Variable cost per unit = $6
	For 3000 units order fixed cost $6,300 is fixed cost which is being cost to be incurred if we accept the order is $6,300 the shipping cost not $392,000 so as the fixed cost 392,000 is already incurred whether accept special order
	To Break even on the order , unit sales price should that price at which it recovered all its cost that is both variable and fixed but no profit.
	Let X be the unit sales price be to break even on the special order
	Fixed cost for Special order (shipping cost) = (Break even unit sales price - Variable cost per unit) x no of units in special order
	$6,300 = (Break even unit sales price - $6) x 3000
	Break even unit sales price = (6300/3000) + $6
	Break even unit sales price =$2.10 + $6
	Break even unit sales price =$8.10
Hence	To Break even on the order , unit sales price be $8.10
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