Special order pricing Shorewood Shoes Company makes and sells a variety of leather shoes for children. For its current mix of different models and sizes, the average selling price and costs per pair of shoes are as follows:
ITEM AMOUNT
Price................. $20
Costs:
Direct materials............. $6
Direct labor............... 4
Variable manufacturing overhead....... 2
Variable selling costs........... 1
Fixed overhead............... 3
Total costs................ $16
Shoes are manufactured in batch sizes of 100 pairs. Each batch requires 5 machine hours to manufacture. The plant has a total capacity of 4,000 machine hours per month, but current monthly production consumes only about 80% of the capacity.
A discount store has approached Shorewood to buy 10,000 pairs of shoes next month. It has requested that the shoes bear its own private label. Embossing the private label will cost Shorewood an additional $0.50 per pair. However, no variable selling costs will be incurred for fulfilling this special order.
Required
Determine the minimum (floor) price that Shorewood Shoes should charge for this order. What other considerations are relevant in this decision?