Accepting Business at a Special Price Power Serve Company expects to operate at

Question

Accepting Business at a Special Price Power Serve Company expects to operate at 90% of productive capacity during April. The total manufacturing costs for April for the production of 39,600 batteries are budgeted as follows: Direct materials Direct labor Variable factory overhead Fixed factory overhead $635,500 233,600 65,460 134,640 $1,069,200 The company has an opportunity to submit a bid for 2,000 batteries to be delivered by April 30 to a government agency. If the contract is obtained, it is anticipated that the additional activity will not interfere with normal production during April or increase the selling or administrative expenses. a. What is the April budgeted cost per battery for the production of 39,600 batteries? per battery b. What is the unit cost below which Power Serve Company should not go in bidding on the government contract? per unit

Explanation / Answer

SOLUTION

(A) Budgeted cost per battery = Total manufacturing costs / No. of batteries

= $1,069,200 / 39,600 batteries

= $27 per battery

(B) Direct materials per unit = $635,500 / 39,600 = $16.05

Direct labor per unit = $233,600 / 39,600 = $5.90

Variable factory overhead per unit = $65,460 / 39,600 = $1.65

Total cost per unit = $16.05 + $5.90 + $1.65 = $23.60

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