Ziggy has now been informed that a customer has cancelled an order for one hundred Z58 Microphones with a delivery date at the end of next month. Given this cancellation and again assuming that the sole objective is to maximize the gross profit derived from the Z58 microphone sales next month, what is the minimum acceptable price per microphone for the special order?

Express your answer to the nearest dollar.

Question

Ziggy has now been informed that a customer has cancelled an order for one hundred Z58 Microphones with a delivery date at the end of next month. Given this cancellation and again assuming that the sole objective is to maximize the gross profit derived from the Z58 microphone sales next month, what is the minimum acceptable price per microphone for the special order?

Express your answer to the nearest dollar.

BlackTom AI · Accepted Answer

The question asks for the minimum acceptable price per microphone for a special order, given a cancellation and the goal to maximize gross profit in the next month. To approach this, we need to consider the incremental or marginal effect of accepting the order versus not accepting it.

First, identify the decision context and the objective: maximize gross profit next month. This means we should compare the additional contribution margin from the special order to any potential foregone profits (opportunity costs) from other uses of the same production capacity.

Next, determine the relevant costs and constraints:
- Variable cost per Z58 microphone: what it costs to produce or procure one unit, including materials, direct labor, and any incremental overhead allocated to that unit. This establishes the baseline for contribution margin if the order is accepted.
- Incremental revenue: the price charged to the customer for each microphone in the special order. Since the problem asks for the minimum acceptable price, we are solving for the price that makes the order neutral on a marginal basis.
- Capacity and fixed costs: if there is idle capacity that would otherwise be unused, any revenue from the special order that covers at least its variable costs contributes positively to gross profit. If capacity is tight and the firm would have to forgo a more profitable use, the opportunity cost must be included in the calculation.

Then, compute the minimum acceptable price per unit as follows:
- Determine the unit variable cost (VC) for producing a Z58 microphone.
- Determine any incremental fixed cost that would be incurred by accepting the order (often none for a one-off temporary order, but confirm).
- The minimum acceptable price P_min is determined by P_min = VC + any incremental costs minus any incremental benefits? In straightforward terms, to maximize gross profit, you would set P_min equal to the variable cost plus any opportunity costs that would be incurred by accepting the order. If there is unused capacity and no better alternative use, the opportunity cost may be zero, so P_min ≈ VC.

If you have capacity constraints and a higher-value alternative use exists (e.g., selling to a regular customer at a higher price or using the capacity for a different product line), you must include that forgone contribution as an opportunity cost in the calculation: P_min = VC + OpportunityCost_per_unit.

Additionally, consider the timing: the order is scheduled for the end of next month. If there are any cash flow implications (e.g., deposits, costs incurred earlier, or discounting), those should not alter the per-unit threshold unless the business uses a time-value of money approach beyond gross profit per unit.

In summary, with the information given, you would need the per-unit variable cost and any incremental costs or opportunity costs to compute the exact minimum price. Without those figures, the general approach is to set the price at least equal to the unit variable cost plus any relevant incremental costs or forgone profits, ensuring that accepting the order increases or, at minimum, does not decrease next month’s gross profit.

Note: If the firm has ample unused capacity and there are no better marginal opportunities, the minimum acceptable price would align with the variable cost per microphone. If capacity is scarce and a more profitable alternative exists, the minimum price must exceed the variable cost by the amount of the forgone contribution from the alternative use.

ACCT20001_2025_SM1 Exam: Cost Management (ACCT20001_2025_SM1) - Requires Respondus LockDown Browser

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Assuming that the sole goal is to maximize the gross profit derived from Z58 microphone sales next month and no other factors are considered, what is the minimum acceptable price per microphone for the special order? Express your answer to the nearest dollar.

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