Accepting Business at a Special Price Forever Ready Company expects to operate a
ID: 2476731 • Letter: 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 30,340 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.
$ per unit
Explanation / Answer
Computation of Minimum Bid per Unit
Particulars
Amount
Direct Material
$ 464,200.00
Direct Labor
$ 170,700.00
Variable Manufacturing Overhead
$ 47,750.00
Total Variable Cost
$ 682,650.00
No of units
30,340
Variable cost per Unit
$ 22.50
Company should not go below $22.50
Fixed cost is sunk hence irrelevant for decision making
Computation of Minimum Bid per Unit
Particulars
Amount
Direct Material
$ 464,200.00
Direct Labor
$ 170,700.00
Variable Manufacturing Overhead
$ 47,750.00
Total Variable Cost
$ 682,650.00
No of units
30,340
Variable cost per Unit
$ 22.50