A Manufacturer Operating with Excess Capacity Has Been Asked to Fill

Multiple Choice

A manufacturer operating with excess capacity has been asked to fill a special order at $7.25 per unit. The regular price is $10 per unit. No other use of the currently idle capacity can be found. The manufacturer's usual variable costs per unit are $3.50 for direct materials, $2.00 for direct labor, $1.00 for variable overhead, and $0.50 for sales commission. No sales commission would be paid on this special order. The average fixed overhead cost per unit is $0.25. Assume there is no excess capacity (i.e., the company can sell every unit that it produces to regular customers) . Under the general decision rule, the minimum price per unit for this special order would be

A) $10.00
B) $7.25
C) $5.75
D) $6.50