Question - Salisbury Corporation has been producing and selling 30,000 caps a year. The company has the capacity to produce 40,000 caps with its present facilities. The following information is also available:
Selling price per unit: $35
Variable costs per unit:
Manufacturing $14
Selling and Administrative $6
Fixed costs in total:
Manufacturing $128,000
Selling and Administrative $56,000
Gilbert Company has contacted Salisbury about purchasing 10,000 units at $24 each. A new customer who wants 20,000 units (all or nothing) right now also contacted Salisbury. Salisbury has to reduce its existing sales in order to sells to the new customer. For the new customer, variable selling and administrative costs would not be incurred. Unfortunately, Salisbury cannot sell both to Gilbert Company and the new customer. What is Salisbury's minimum price in order for them to accept the offer from the new customer (instead of Gilbert Company)?
a. $16.00
b. $23.50
c. $20.00
d. $29.50
e. None of the above