=+7 A proposal is received from an outside supplier who will make and ship the stylish pens directly to Class Ltd’s customers as sales orders are forwarded from Class Ltd’s sales staff. Class Ltd’s fixed marketing costs will be unaffected but its variable marketing costs will be slashed by 20%. Class Ltd’s plant will be idle but its fixed manufacturing overhead will continue at 50% of present levels. How much per unit would the company be able to pay the supplier without decreasing operating profit?

(a) $4.75,

(b) $3.95,

(c) $2.95,

(d) $5.35 or

(e) none of these.