How to Determine the Break-Even Price for a Special Order

What is the lowest price that can be accepted by Indigo in order to break even on the special order?

If Indigo wants to break even on the special order of 3,000 units, what is the lowest price that can be accepted?

Calculation of Break-Even Price for the Special Order

To determine the lowest price that Indigo must accept to break even on the special order, we need to consider the variable costs and additional shipping costs incurred.

Indigo Industries produces a product with $12 of variable costs per unit. They have received a special order from a foreign wholesaler for 3,000 units and will incur $2,400 in additional shipping costs if they accept the order.

Given that the total cost to be recovered is $38,400 ($36,000 variable costs + $2,400 additional shipping costs) for the 3,000 units in the special order, the lowest price that Indigo would have to accept to break even is $12.8 per unit.

This means that in order to cover all costs and not incur a loss on the special order, Indigo should accept the offer from the foreign wholesaler at a price of $12.8 per unit.

Understanding the break-even price is essential for businesses to make informed decisions about pricing and maintaining profitability. By calculating the break-even point, companies can determine the minimum price required to cover all costs and ensure financial viability.