Shelby Industries has a capacity to produce 45,00045,000 oak shelves per year and is currently selling 40,00040,000 shelves for $32$32 each. Martin Hardwoods has approached Shelby about buying 1,2001,200 shelves for a new project and is willing to pay $26$26 each. The shelves can be packaged in bulk; this saves Shelby $1.50$1.50 per shelf compared to the normal packaging cost. Shelves have a unit variable cost of $27$27 with fixed costs of $350,000$350,000. Because the shelves don’t require packaging, the unit variable costs for the special order will drop from $27$27 per shelf to $25.50$25.50 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 45,00045,000 oak shelves per year and is currently selling 40,00040,000 shelves for $32$32 each. Martin Hardwoods has approached Shelby about buying 1,2001,200 shelves for a new project and is willing to pay $26$26 each. The shelves can be packaged in bulk; this saves Shelby $1.50$1.50 per shelf compared to the normal packaging cost. Shelves have a unit variable cost of $27$27 with fixed costs of $350,000$350,000. Because the shelves don’t require packaging, the unit variable costs for the special order will drop from $27$27 per shelf to $25.50$25.50 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?
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