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Homework answers / question archive / Accepting Business at a Special Price Power Serve Company expects to operate at 90% of productive capacity during May
Accepting Business at a Special Price Power Serve Company expects to operate at 90% of productive capacity during May. The total manufacturing costs for May for the production of 34,200 batteries are budgeted as follows: Direct materials $520,900 Direct labor 191,500 Variable factory overhead 53,680 Fixed factory overhead 107,000 Total manufacturing costs $873,080 The company has an opportunity to submit a bid for 2,000 batteries to be delivered by May 31 to a government agency. If the contract is obtained, it is anticipated that the additional activity will not interfere with normal production during Mayor increase the selling or administrative expenses. What is the unit cost below which Power Serve Company should not go in bidding on the government contract7 Round your answer to two decimal places. per unit
| Since there is spare capacity, no additional fixed costs will be incurred on the order | |||||
| Lowest bid is equal to the additional cost to be incurred for the units | |||||
| The fixed cost is sunk cost, the company should not bid below the variable manufacturing cost per unit | |||||
| Particulars | Amount | ||||
| Direct Materials (A) | 520,900 | ||||
| Direct Labor (B) | 191,500 | ||||
| Variable Factory Overhead (C ) | 53,680 | ||||
| Total Variable Manufacturing Cost E = (A+B+C) | 766,080 | ||||
| Number of Batteries (F) | 34,200 | ||||
| Variable Manufacturing Cost per unit (E/F) | 22.40 | ||||
| Hence, the company should not go in bidding below the unit cost of $ 22.40 |
