Accepting Business at a Special Price Power Serve Company expects to operate at
ID: 2534031 • Letter: A
Question
Accepting Business at a Special Price Power Serve Company expects to operate at 90% of productive capacity during July. The total manufacturing costs for July for the production of 36,000 batteries are budgeted as follows: Direct materials Direct labor Variable factory overhead Fixed factory overhead Total manufacturing costs The company has an opportunity to submit a bid for 2,000 batteries to be delivered by July 31 to a government agency. If the contract is obtained, it is anticipated that the additional activity will not interfere with normal production during July 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 $536,100 197,100 55,200 110,000 $898,400 per unitExplanation / Answer
Total variable factory costs
Direct materials =$536,100
Direct labor =$197,100
Variable factory overhead = $55,200
Total = $788,400
Total units of production =36,000
Variable factory cost per unit =788400/36000 =$21.90
Fixed costs will not increase with this assignment as total production (i e., 36000+2000=38000) will be within manufacturing capacity (36000/90percent = 40000)
So the minimum selling price will be $21.90.