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Burns Industries currently manufactures and sells 20.000 power saws per month, although it has the capacity to produce 35,000 units per month. At the 20,000-unit-per-month level of production, the per- unit cost is $65, consisting of $40 in variable costs and S25 in fixed costs. Burns sells its saws to retail stores for $80 each. Allen Distributors has offered to purchase 5,000 saws per month at a reduced price. Burns can manufacture these additional units with no change in its present level of fixed manufacturing costs. Using an incremental analysis approach, Burns should consider accepting this special order only if the price per unit offered by Allen is at least: $80. $20. $50. $40

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Answer:

The order should be accepted only if the offered price is $40

Explanation:

To determine where or not a special order is to be accepted , it is important that we compare the offered price to the relevant unit variable cost of production .

The fixed will be ignored because they would be incurred either way.

Note that variable cost per unit represent the direct cost associated with producing each unit of the product. And this should be the minimum acceptable price per unit

The order should be accepted only if the offered price is $40

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