Accepting Business at a Special Price Forever Ready Company expects to operate a
ID: 2560776 • Letter: A
Question
Accepting Business at a Special Price Forever Ready Company expects to operate at 88% of productive capacity during May. The total manufacturing costs for May for the production of 29,920 batteries are budgeted as follows: Direct materials $290,900 Direct labor 107,000 Variable factory overhead 29,956 Fixed factory overhead 60,000 Total manufacturing costs $487,856 The company has an opportunity to submit a bid for 2,000 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
Only variable cost per unit is relevant , fixed costs can be ignored for the speical order.
the follwing is the calculation of unit cost below which Forever Ready company should not go in bidding:
The unif cost below which Forever ready company should not go in bidding on the government contract = $14.30.
Direct material $290,900 direct labour $107,000 variable factory overhead $29,956 total variable costs $427,856 number of units produced 29,920 units Variable cost per unit ($427,856 / 29,920) $14.30