Accepting Business at a Special Price Forever Ready Company expects to operate 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 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 $298,600 Direct labor 109,800 Variable factory overhead 30,710 Fixed factory overhead 61,000 Total manufacturing costs $500,110

Explanation / Answer

Direct materials 10.40 =298600/28700 Direct labor 3.83 =109800/28700 Variable factory overhead 1.07 =30710/28700 Minimum unit cost for bidding 15.30

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