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?

Question

Business

Britney

11 March, 21:24

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?

+2

Answers (1)

Know the Answer?

Cadence Frazier · Answer 1

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