Please show the steps to solve this problem. Accepting Business at a Special Pri
ID: 2468837 • Letter: P
Question
Please show the steps to solve this problem.
Accepting Business at a Special Price
Power Serve Company expects to operate at 82% of productive capacity during May. The total manufacturing costs for May for the production of 31,160 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 Power Serve Company should not go in bidding on the government contract? Round your answer to two decimal places.
$ per unit
Explanation / Answer
As it is anticipated, If the contract is obtained, that the additional activity will not interfere with normal production during May or increase the selling or administrative expenses, the fixed Factory overhead will remain same even if the contract of producing additional 3000 batteries.
The direct material cost per battery = $425900 / 31160 batteries = $13.67 per battery
The direct labour cost per battery = $ 156600 / 31160 batteries = $5.03 / battery
The variable factory overhead cost per unit = $43816 / 31160 batteries = $1.41 / battery.
The unit cost below which Power Serve Company should not go in bidding on the government contract
= direct material cost / unit + direct labour cost / unit + Variablbe overhead cost per unit
= $13.67 + $5.03 + $1.41 = $20.11 per unit