The Prescott Company produces a light-weight wind breaker with the following per unit costs:
Direct Materials $4.00
Direct Labor 1.00
Variable Overhead 1.75
Fixed Overhead 2.00
Total Unit Cost $8.75
While production capacity for the next year is 200,000 units, Prescott expects to produce only 170,000.
The fixed selling costs total $85,000 per year and variable selling costs are $.5 for each unit sold.
The wind breakers usually sell for $12 each.
A customer from outside of Prescott's normal sales area has offered to buy 20,000 wind breakers for $8 each. Further, the customer would pay all transportation costs and there would be not variable selling costs incurred.