Accepting Business at a Special Price Power Serve Company expects to operate at
ID: 2498434 • Letter: A
Question
Accepting Business at a Special Price Power Serve Company expects to operate at 90% of productive capacity during May. The total manufacturing costs for May for the production of 31,500 batteries are budgeted as follows:
Direct materials $304,200
Direct labor 111,800
Variable factory overhead 31,300
Fixed factory overhead 63,000
Total manufacturing costs $510,300
The company has an opportunity to submit a bid for 1,000 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
Any price above 14.20 would add to profit of the firm.
If 31500 = 90% then 31500 / .90 then 100% would be = 35,000 Any order below this range will be additional profit for the firm and will not incur any fixed cost We will only consider variable cost while deciding upon new order Direct materials $304,200 / 31500 $ 9.66 Direct labor 111,800 / 31500 $ 3.55 Variable factory overhead 31,300 / 31500 $ 0.99 Therefore price to be offered should not be less then $14.20