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Accepting Business at a Special Price Power Serve Company expects to operate at 82% of productive...

Accepting Business at a Special Price

Power Serve Company expects to operate at 82% of productive capacity during May. The total manufacturing costs for May for the production of 35,260 batteries are budgeted as follows:

Direct materials $338,100
Direct labor 124,300
Variable factory overhead 34,766
Fixed factory overhead 70,000
Total manufacturing costs $567,166

The company has an opportunity to submit a bid for 3,000 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 production during May or increase the selling or administrative expenses.

What is the unit cost below which Power Serve Company should not go in bidding on the government contract? Round your answer to two decimal places.
$ per unit

Business   Accounting   
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Answer #1
Total Variable Manufacturing cost = Direct material + Direct Labor + Variable factory overhead
Total Variable Manufacturing cost = 338,100 + 124,300 + 34,766 = 497166
Per unit manufacturing cost = 497166 / 35260 = $ 14.10
As the company has excess capacity so the minimum price would be per unit varriable manufacturing cost = $ 14.10.
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