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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Accepting business at a special price

Portable Power Company expects to operate at 80% of productive capacity during July. The total manufacturing costs for July for the production of 25,000 batteries are budgeted as follows:

Direct materials $162,500
Direct labor 70,000
Variable factory overhead 30,000
Fixed factory overhead 112,500
Total manufacturing costs $375,000

The company has an opportunity to submit a bid for 2,500 batteries to be delivered by July 31 to a government agency. If the contract is obtained, it is anticipated that the additional activity will not interfere with normal production during July or increase the selling or administrative expenses. What is the unit cost below which Portable Power Company should not go in bidding on the government contract?

To determine

Product pricing: Product pricing is the method used for fixing a price for the products sold or the services offered to the consumers. The main aim of product pricing is to calculate the cost and the contribution margin, based on which the price is fixed.

To Calculate:  The minimum unit cost in bidding.

Explanation

Company PP produces batteries and has a new proposal to bid on a government contract. Company PP produces 25,000 units and the government contract is for 2,500 units.

Calculate the variable cost involved in production of batteries.

Total Cost $375,000
Less Fixed cost $112,500
Total Variable Cost $262,500

Calculate the cost per unit of battery...

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