Forever Ready Company expects to operate at 82% of productive capacity during Ma

Question

Forever Ready Company expects to operate at 82% of productive capacity during May. The total manufacturing costs for May for the production of 28,700 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 $396,200 Direct labor 145,700 Variable factory overhead 40,710 Fixed factory overhead 82,000 Total manufacturing costs $664,610

Explanation / Answer

Unit cost below which Forever Ready should not go = $582,610/ 28,700

                                                                                   = $20.30

( Fixed cost is sunk cost hence not considered)

Direct materials $396,200 Direct labor $145,700 Variable factory overhead $ 40,710 Total variable manufacturing overhead $582,610

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