Accepting Business at a Special Price Power Serve Company expects to operate at
ID: 2571259 • Letter: A
Question
Accepting Business at a Special Price
Power Serve Company expects to operate at 88% of productive capacity during May. The total manufacturing costs for May for the production of 33,440 batteries are budgeted as follows:
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 Power Serve Company should not go in bidding on the government contract? Round your answer to two decimal places.
$ per unit
Explanation / Answer
Annual Capacity = Capacity Used / Capacity used in %
= 33440 / 88%
= 38000 Units
Spare Capacity = Total Capacity - Used Capacity
= 38000 - 33440
= 4560 Units
Minimum Price should be quoted as $20.50
Fixed cost will continue to occur therefore it is not relevant,
Particulars Tota Cost No of Units Per Unit Direct materials 466,200.00 33,440.00 13.94 Direct labor 171,400.00 33,440.00 5.13 Variable factory overhead 47,920.00 33,440.00 1.43 Total 685,520.00 20.50