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17 July, 18:11

Box Elder Power Company expects to operate at 85% of productive capacity during May. The total manufacturing costs for May for the production of 40,000 batteries are budgeted as follows:

Direct materials $240,000

Direct labor 100,000

Variable factory overhead 32,000

Fixed factory overhead 150,000

Total manufacturing costs $522,000

The company has an opportunity to submit a bid for 5,000 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 operation during May or increase the selling or administrative expenses.

Required:

1. What is the unit cost below which Box Elder Power Company should not go in bidding on the government contract?

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Answers (1)
  1. 17 July, 20:16
    0
    The company should not go below $9.30 in bidding on the government contract.

    Explanation:

    Given:

    Direct materials = $240,000

    Direct labor = 100,000

    Variable factory overhead = 32,000

    Fixed factory overhead = 150,000

    Total manufacturing costs = $522,000

    Direct Material p. u = $240,000 : 40,000 = $6

    Direct Labor p. u = $100,000 : 40,000 = $2.5

    Variable Factory overhead p. u = $32,000 : 40,000 = $0.8

    Total overhead = Direct Material p. u + Direct Labor p. u + Variable Factory overhead p. u

    = $6 + $2.5 + $0.8

    Thus total overhead = $9.3
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