Deeds Company sells custom-made machine parts to industrial equipment manufacturers by bidding cost plus 40 percent, where cost is defined as manufacturing cost plus order processing cost. There are two types of customers: those who place small, frequent orders and those who place larger, less frequent orders. Cost and sales information by customer category is provided below. Frequently Ordering Customers Less Frequently Ordering Customers Sales orders 41,000 4,100 Order size 15 150 Average unit manufacturing cost $40 $40 Order-processing activity costs: Processing sales orders $2,878,500
Deeds Company sells custom-made machine parts to industrial equipment manufacturers by bidding cost plus 40 percent, where cost is defined as
| Frequently Ordering Customers |
Less Frequently Ordering Customers |
|||||||
| Sales orders | 41,000 | 4,100 | ||||||
| Order size | 15 | 150 | ||||||
| Average unit manufacturing cost | $40 | $40 | ||||||
| Order-processing activity costs: | ||||||||
| Processing sales orders | $2,878,500 |
Order-filling capacity is purchased in steps (order-processing clerks) of 1,000, each step costing $43,000; variable order-filling activity costs are $35 per order. The activity capacity is 55,000 orders; thus, the total order-filling cost is $3,943,500 [(55 steps × $43,000) + ($35 × 45,100)]. Current practice allocates ordering cost in proportion to the units purchased.
Deeds recently lost a bid for 100 units. (The per-unit bid price was $2 per unit more than the winning bid.) The manager of Deeds was worried that this was a recurring trend for the larger orders. (Other large orders had been lost with similar margins of loss.) No such problem was taking place for the smaller orders; the company rarely lost bids on smaller orders.
1. Calculate the unit bid price offered to Deeds’s customers assuming that order-filling cost is allocated to each customer category in proportion to units sold. Note: Do not round interim calculations. Round your final answer to the nearest cent.
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