Shelby Industries has a capacity to produce 45,000 oak shelves per year and is currently selling 40,000 shelves for $32 each. Martin Hardwoods has approached Shelby about buying 1,000 shelves for a new project and is willing to pay $25 each. The shelves can be packaged in bulk; this saves Shelby $1.40 per shelf compared to the normal packaging cost. Shelves have a unit variable cost of $26 with fixed costs of $350,000. Because the shelves don’t require packaging, the unit variable costs for the special order will drop from $26 per shelf to $24.60 per shelf. Shelby has enough idle capacity to accept the contract. What is the minimum price per shelf that Shelby should accept for this special order?
Shelby Industries has a capacity to produce 45,000 oak shelves per year and is currently selling 40,000 shelves for $32 each. Martin Hardwoods has approached Shelby about buying 1,000 shelves for a new project and is willing to pay $25 each. The shelves can be packaged in bulk; this saves Shelby $1.40 per shelf compared to the normal packaging cost. Shelves have a unit variable cost of $26 with fixed costs of $350,000. Because the shelves don’t require packaging, the unit variable costs for the special order will drop from $26 per shelf to $24.60 per shelf. Shelby has enough idle capacity to accept the contract. What is the minimum price per shelf that Shelby should accept for this special order?
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
