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 1,200 shelves for a new project and is willing to pay $26 each. The shelves can be packaged in bulk; this saves Shelby $1.50 per shelf compared to the normal packaging cost. Shelves have a unit variable cost of $27 with fixed costs of $350,000. Because the shelves don’t require packaging, the unit variable costs for the special order will drop from $27 per shelf to $25.50 per shelf. Shelby has enough idle capacity to accept the contract. PLEASE NOTE: All dollar amounts are rounded to whole dollars, except for per shelf, which are rounded to two decimal places. All dollars are shown with "$" and commas as needed (i.e. $12,345). When negotiating the price: What is the minimum price per shelf that Shelby should accept for this special order?  per shelf. If accepted, what are the total sales?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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4. 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 1,200 shelves for a new project and is willing to pay $26 each. The shelves can be packaged in bulk; this saves Shelby $1.50 per shelf compared to the normal packaging cost. Shelves have a unit variable cost of $27 with fixed costs of $350,000. Because the shelves don’t require packaging, the unit variable costs for the special order will drop from $27 per shelf to $25.50 per shelf. Shelby has enough idle capacity to accept the contract.

PLEASE NOTE: All dollar amounts are rounded to whole dollars, except for per shelf, which are rounded to two decimal places. All dollars are shown with "$" and commas as needed (i.e. $12,345).

When negotiating the price:

  1. What is the minimum price per shelf that Shelby should accept for this special order?  per shelf.
  2. If accepted, what are the total sales? 
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