1-41. Cost Data for Managerial Purposes Haverhill Electronics (HE) has offered to supply the county government with one model of its security screening device at “cost plus 20 percent.” HE operates a manufacturing plant that can produce 22,000 devices per year, but it normally produces 20,000. The costs to produce 20,000 devices follow. Total Cost Cost per Device Production costs: Materials $ 1,000,000 $ 50 Labor 2,000,000 100 Supplies and other costs that will vary with production 600,000 30 Indirect cost that will not vary with production 600,000 30 Variable marketing costs 400,000 20 Administrative costs (will not vary with production) 1,200,000 60 Totals $ 5,800,000 $290 Based on these data, company management expects to receive $348 (= $290 × 120 percent) per device for those sold on this contract. After completing 200 devices, the company sent a bill (invoice) to the government for $69,600 (= 200 devices × $348 per device). The president of the company received a call from a county auditor, who stated that the per device cost should be as follows. Materials $ 50 Labor 100 Supplies and other costs that will vary with production 30 $180 Therefore, the price per device should be $216 (= $180 × 120 percent). The county government ignored marketing costs because the contract bypassed the usual selling channels. Required What price would you recommend? Why? (Note: You need not limit yourself to the costs selected by the company or by the government auditor.)
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
1-41. Cost Data for Managerial Purposes
Haverhill Electronics (HE) has offered to supply the county government with one model of its security screening device at “cost plus 20 percent.” HE operates a manufacturing plant that can produce 22,000 devices per year, but it normally produces 20,000. The costs to produce 20,000 devices follow.
Total Cost Cost per
Device
Production costs:
Materials $ 1,000,000 $ 50
Labor 2,000,000 100
Supplies and other costs that will vary with production 600,000 30
Indirect cost that will not vary with production 600,000 30
Variable marketing costs 400,000 20
Administrative costs (will not vary with production) 1,200,000 60
Totals $ 5,800,000 $290
Based on these data, company management expects to receive $348 (= $290 × 120 percent) per device for those sold on this contract. After completing 200 devices, the company sent a bill (invoice) to the government for $69,600 (= 200 devices × $348 per device).
The president of the company received a call from a county auditor, who stated that the per device cost should be as follows.
Materials $ 50
Labor 100
Supplies and other costs that will vary with production 30
$180
Therefore, the price per device should be $216 (= $180 × 120 percent). The county government ignored marketing costs because the contract bypassed the usual selling channels.
Required
What price would you recommend? Why? (Note: You need not limit yourself to the costs selected by the company or by the government auditor.)
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