Accepting Business at a Special Price Forever Ready Company expects to operate a

Question

Accepting Business at a Special Price

Forever Ready Company expects to operate at 82% of productive capacity during May. The total manufacturing costs for May for the production of 29,520 batteries are budgeted as follows:

The company has an opportunity to submit a bid for 3,000 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 May or increase the selling or administrative expenses.

What is the unit cost below which Forever Ready Company should not go in bidding on the government contract? Round your answer to two decimal places.

Direct materials $275,000 Direct labor 101,100 Variable factory overhead 28,324 Fixed factory overhead 57,000 Total manufacturing costs $461,424

Explanation / Answer

Calculate bidding price :

So answer is $13.70

Direct material 275000 Direct labour 101100 Variable factory overhead 28324 Total relevant cost 404424 Unit produced 29520 Unit cost 13.70

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