Problem 26-4

Problem 26-4 Taylor Electronics, Inc. (TEI), has been approached by a new customer who wants to place a one-time order for a component similar to one that TEI makes for another customer. Existing sales will not be affected by acceptance of this order. TEI has a policy of setting its targeted selling price at 60 percent over full manufacturing cost. The manufacturing costs and targeted selling price for the component currently being made are as follows: TEI has excess capacity to produce the quantity of the component desired by the new customer. The direct materials used in the component for the new customer would cost the manufacturer $0.25 less than those in the component currently being made. The variable selling expenses (packaging and shipping) would be the same as for the component currently being made, or $0.90 per unit. Required: What is the minimum unit price at which TEI would be selling to accept the special order? Show calculations to explain