Tribute Company is a small Atlantic Canadian manufacturer of a specialty cosmetic bag. The selling price of each bag is $7.50. Each bag has variable manufacturing costs of $3.60 per bag and total fixed costs at the current production level of $175,000. The cosmetic bags are sold in retail pharmacies and Tribute Companys sales force earns a 5 percent commission on sales to the retailers. Marketing and administrative costs are fixed costs of $75,000 per year.

One of Tributes sales people has received a request for an order of 1,500 cosmetic bags but the retailer is looking for a discounted price. The CEO, Jane Elliott, would like your advice on the following questions. Tribute is operating profitably at 75 percent of its total capacity of 100,000 cosmetic bags.

1. What is the minimum selling price Tribute should charge on this special order?
2. If Tribute wants a profit of 12 percent of the selling price what is the minimum selling price Tribute should charge on this special order?
3. Refer to the original data. If Tribute must incur special set up costs due to this order of $3,250 what is the minimum selling price Tribute should charge on this special order?