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Cathy Company produces a single product called a Pong. Cathy has the capacity to produce 60,000 Pongs each year. If Cathy produces at capacity, the
Cathy Company produces a single product called a Pong. Cathy has the capacity to produce 60,000 Pongs each year. If Cathy produces at capacity, the per unit costs to produce and sell one Pong is as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense Total $15 12 m W $55 The regular selling price for one Pong is $80. A special order has been received by Cathy from Jordan Company wanting to purchase 6,000 Pongs next year at $65 per unit. If this special order is accepted, the variable selling expense will be reduced by 25%. The total fixed manufacturing overhead and the total fixed selling expenses will be unaffected by this special order. However, Cathy will have to purchase a specialized machine to engrave the Jordan name on each Pong in the special order. This machine will cost $6,000 and it will have no use and no salvage value after the special order is filled. Assume Cathy anticipates selling only 50,000 units of Pong to regular customers next year. What would the selling price per Pong need to be for Cathy to be economically indifferent between accepting and rejecting the special order? O $38 $36 $38.50 $42 O $55
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