Accepting Business at a Special Price Power Serve Company expects to operate at
ID: 2468478 • Letter: A
Question
Accepting Business at a Special Price Power Serve Company expects to operate at 88% of productive capacity during May. The total manufacturing costs for May for the production of 35,200 batteries are budgeted as follows:
Direct materials $301,600
Direct labor 110,900
Variable factory overhead 31,020
Fixed factory overhead 62,000
Total manufacturing costs $505,520
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 May or increase the selling or administrative expenses.
What is the unit cost below which Power Serve Company should not go in bidding on the government contract? Round your answer to two decimal places.
Explanation / Answer
unit cost below which Power Serve Company should not go in bidding on the government contract 12.60 Statement showing computations Particulars 35,200 Units Per Unit 2,000Units Direct Material 301,600.00 8.57 17,136.36 Direct Labour 110,900.00 3.15 6,301.14 Variable Factory Overhead 31,020.00 0.88 1,762.50 Total Relevant Costs 443,520.00 12.60 25,200.00