Question

Walton Corporation is currently selling 104 units of its product. The company is deciding the price that it should charge for a bulk order of 40 units. The variable cost per unit is $200. This order will not involve any additional fixed costs and the company's current sales will not be affected. The company targets a profit of $4,000 on the bulk order. What selling price per unit should the company quote for the bulk order? (Round your answer to the nearest whole dollar.)

Answer 1

Answer:

 Selling price= $300

Explanation:

The bulk order will not increase the total fixed cost of Walton Corporation, but it is important that the company covers its total relevant cost. The relevant cost of the decsio to supply the bulk order are all the future cash flows that arise as a result of supplying the bullk order.

The only relevant cost for the bulk order is the variable cost.

So we calculate the selling price as follows:

Step 1

Calculate the relevant cost of the bulk order

= $200× 40

= $8,000

Step 2

Calculate the total revenue

Total revenue = Total relevant cost + Target profit

= 8,000 + 4,000

=$12,000

Step 3

Determine the selling price

Selling price = $12,000/40

                  = $300

 Selling price = $300