Question
Gama company has a single product called a Xet. The company normally produces and sells 80,000 Xet's each year. The company unit costs are given
Gama company has a single product called a Xet. The company normally produces and sells 80,000 Xet's each year. The company unit costs are given below:
DM $9.50
DL $10
Variable OH $2.80
Fixed OH $5.00 ($400,000 total)
Variable Selling expenses $1.70
Fixed Selling expenses $4.50 ($360,000 total)
Total cost per unit $33.50
One of the materials in the production of Xets is obtained from a foreign supplier. Civil unrest has caused a cutoff in material shipments that is expected to last for 3 months. Gama Company has enough materials to operate at 40% of normal operating levels for the 3 month period. As an alternative the company can close down the plant for the three months. Closing the plant would reduce fixed manufacturing overhead by 30% during the 3 months and fixed selling expenses would continue at 2/3 their normal operating level. What is the selling price per unit of Xet that would make the company indifferent between closing the plant and not closing the plant for the 3 month period?
A. $31.50
B. $43.50
C. $24.00
D. $35.50
Please show all work.
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