Special order pricing McGee Corporation’s Olympia plant produces a module used in automobile manufacturing. The company’s practical capacity is 4,000 modules per week. The selling price is $900 per module. Production this quarter is 3,000 modules per week, and all of the modules produced are sold each week. Demand is expected to remain steady. Total costs of production this week at the level of 3,000 modules were $300,000 of fixed costs plus $2,400,000 of variable costs.
Suppose that a new customer’s supplier has an emergency need for 1,500 modules to be delivered next week and that the plant cannot schedule overtime production. Consequently, McGee would have to give up some of its current sales to fill the new order. Total selling and administrative costs would not change if McGee accepts the order.
Required
What is the minimum (floor) price that McGee should charge for the new order?