Wonderland Ltd. produces and sells strategy board games to game shops and toy stores. Its marketing agent
Question:
Wonderland Ltd. produces and sells strategy board games to game shops and toy stores.
Its marketing agent has been approached by the organizers of a gaming convention who want to purchase 40,000 units of Wonderland's latest game, called Rollit, to sell at its upcoming convention.
Wonderland sells the game to its regular customers for $88 and incurs the following costs per unit:
Product costs (of which 40% are fixed) $50
Selling and administration costs (of which 60% are fixed) $15
This special order will have variable selling costs of $4 per unit instead of the current level of variable selling and administration costs. All other costs will be the same for the special order.
Wonderland currently has capacity to produce 450,000 units each month, and there are 10,000 units of finished product in inventory. Wonderland expects sales of 430,000 units of product to its regular customers in the upcoming month.
Required
What is the minimum price per game that Wonderland should accept for the special order?
Expert Answer:
Determining the Minimum Price for the Special Order We need to calculate the minimum price per unit that will cover the variable costs associated with ... View the full answer
