The Mighty Music Company produces and sells a desktop speaker for $130. The company has the capacity to produce 53,000 speakers each period. At capacity, the costs assigned to each unit are as follows

Which statement characterizes the time value of money concept?

Explanation

The time value of money concept recognizes that the present value of a dollar received in the future is less than a dollar.

The Mighty Music Company produces and sells a desktop speaker for $130. The company has the capacity to produce 53,000 speakers each period. At capacity, the costs assigned to each unit are as follows:

Unit level costs	$	60
Product level costs	$	18
Facility level costs	$	8

The company has received a special order for 4,000 speakers. If this order is accepted, the company will have to spend $13,000 on additional costs. Assuming that no sales to regular customers will be lost if the order is accepted, at what selling price will the company be indifferent between accepting and rejecting the special order?

Explanation

Budgeted cost for production of 4,000 speakers:

	Per Unit
Unit-level costs	$	60			$	240,000
Other incremental costs						13,000
Relevant cost					$	253,000

The other costs are not relevant because the company will incur them whether it accepts or rejects the special order. At a minimum, the company would need to earn revenue of $253,000 to be indifferent between accepting and rejecting this special order. The price per unit would be calculated as follows: $253,000 ÷ 4,000 units = $63.25 per unit

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