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# Special Order

The Melrose Company produces a single product, Product C. Melrose has the capacity to produce 70,000 units of Product C each year. If Melrose produces at capacity, the per unit costs to produce and sell one unit of Product C are as follows:

Direct materials 20
Direct labor 17
Variable selling expense 12
Fixed selling expense 8

The regular selling price of one unit of Product C is 100. A special order has been received by Melrose from Moore Company to purchase 7,000 units of Product C during the upcoming year. If this special order is accepted, the variable selling expense will be reduced by 75%. Total fixed manufacturing overhead and fixed selling expenses would be unaffected except that Melrose will need to purchase a specialized machine to engrave the Moore name on each unit of product C in the special order. The machine will cost 10,500 and will have no use after the special order is filled.
Reference: 13-13

Assume that Melrose expects to sell 60,000 units of Product C to regular customers next year. At what selling price for the 7,000 units would Melrose be economically indifferent between accepting and rejecting the special order from Moore?

75.00
54.50
53.00
76.50

#### Solution Preview

The variable cost of production is

Direct materials 20
Direct labor 17
...

#### Solution Summary

The solution explains how to calculate the indifference price between accepting or rejecting a special order

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