The Melanie Company produces and sells a desktop speaker for $150. The company has the capacity to produce 55,000 speakers each period. At capacity, the costs assigned to each unit are as follows:

Unit level Variable costs $ 70
Product level fixed costs $ 20
Facility level costs $ 10

The company has received a special order for 6,000 speakers. If this order is accepted, the company will have to spend $15,000 on additional costs. Assuming that no sales to regular customers will be lost if the order is accepted, at what selling price will the company be indifferent between accepting and rejecting the special order? (Do not round your intermediate calculations. Round your final answer to two decimal places.)

Question

The Melanie Company produces and sells a desktop speaker for $150. The company has the capacity to produce 55,000 speakers each period. At capacity, the costs assigned to each unit are as follows:

Unit level Variable costs	$	70	 
Product level fixed costs	$	20	 
Facility level costs	$	10

The company has received a special order for 6,000 speakers. If this order is accepted, the company will have to spend $15,000 on additional costs. Assuming that no sales to regular customers will be lost if the order is accepted, at what selling price will the company be indifferent between accepting and rejecting the special order? (Do not round your intermediate calculations. Round your final answer to two decimal places.)

BlackTom AI · Accepted Answer

We need to evaluate the special order by focusing on the incremental (relevant) costs and comparing them to the incremental revenue at the offered price.
First, determine which costs are relevant to the special order. At capacity, the per-unit costs given include variable costs (70 per unit) and fixed costs (product-level 20 per unit and facility level 10). In this kind of analysis, capacity and sunk fixed costs that do not change with the decision are typically not relevant; only additional, incremental costs and revenues matter.
Options test:
- Option A: $122.50 per unit. If the company sold 6,000 units at $122.50, incremental revenue would be 122.50 × 6,000 = 735,000. The incremental cost to satisfy the order would be the per-unit variable cost (70 × 6,000 = 420,000) plus the special-order incremental cost (15,000). Total incremental cost = 435,000. Since 735,000 > 435,000, this price would clearly be favorable and not indifference; it would yield a large positive contribution margin, which means the company would definitely accept at this price. Thus, this price cannot be the indifference price.
- Option B: $72.50 per unit. At this price, incremental revenue = 72.50 × 6,000 = 435,000. Incremental cost remains 435,000 (420,000 variable costs plus 15,000 additional costs). Here, revenue exactly covers all relevant costs, achieving indifference. This matches the standard break-even-on-the-order calculation when fixed, unavoidable costs are not included, and only variable plus the special-order costs are considered.
- Option C: $83.00 per unit. Incremental revenue at this price would be 83.00 × 6,000 = 498,000. Since 498,000 > 435,000, this price would also be favorable and would result in a positive contribution, meaning the company would accept with profit rather than be indifferent. Therefore not the indifference point.
- Option D: $80.00 per unit. Incremental revenue = 80.00 × 6,000 = 480,000. This is greater than 435,000, so again acceptance would yield a profit rather than indifference. This is not the break-even price either.
Now, isolating the core math: the only relevant costs for the special order are the 70 per unit variable cost for 6,000 units plus the $15,000 of additional costs, totaling 70×6,000 + 15,000 = 420,000 + 15,000 = 435,000. To be indifferent, the price must satisfy price × 6,000 = 435,000, giving price = 435,000 ÷ 6,000 = 72.50. This aligns with the standard approach of treating fixed, capacity-absorbed costs as not affecting the decision, and treating the 15,000 as an incremental hurdle.
In summary, the incorrect options either yield a revenue far exceeding the incremental costs (options A, C, D) or fail to meet the break-even condition exactly, whereas the break-even price that makes the company indifferent is calculated from the incremental cost–revenue equality at 6,000 units: 72.50 per unit.

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