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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:
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? Round your answer to two decimal places.
$Â Â per unit
Solution
Capacity= 80%Â Â Units Produced= 25000 batteries
Particulars
Cost for 25000 units
Cost per unit
Direct Materials
162500
6.5
Direct Labor
70000
2.8
Variable Factory overhead
30000
1.2
Fixed Factory overhead
112500
4.5
Total Cost
375000
15
Thus for producing additional 2500 units, the relevant cost per unit shall be as follows:
Direct Materials
6.5
Direct Labor
2.8
Variable Factory overhead
1.2
Total Relevant cost per unit
10.5
Hence the unit cost below which Portable Power Company should not go into bidding on the
government contract is $10.5 per unit.
(Note: The fixed factory overhead is an irrelevant cost as it will nevertheless be incurred)
Particulars Cost for 25000 units Cost per unit
Direct Materials 162500 6.5
Direct Labor 70000 2.8
Variable Factory overhead 30000 1.2
Fixed Factory overhead 112500 4.5
Total Cost 375000 15
Portable Power Company expects to operate at 80- of productive capacit.docx

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Portable Power Company expects to operate at 80- of productive capacit.docx

  • 1. 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: 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? Round your answer to two decimal places. $Â Â per unit Solution Capacity= 80%Â Â Units Produced= 25000 batteries Particulars Cost for 25000 units Cost per unit Direct Materials 162500 6.5 Direct Labor 70000 2.8 Variable Factory overhead
  • 2. 30000 1.2 Fixed Factory overhead 112500 4.5 Total Cost 375000 15 Thus for producing additional 2500 units, the relevant cost per unit shall be as follows: Direct Materials 6.5 Direct Labor 2.8 Variable Factory overhead 1.2 Total Relevant cost per unit 10.5 Hence the unit cost below which Portable Power Company should not go into bidding on the government contract is $10.5 per unit. (Note: The fixed factory overhead is an irrelevant cost as it will nevertheless be incurred) Particulars Cost for 25000 units Cost per unit Direct Materials 162500 6.5 Direct Labor 70000 2.8 Variable Factory overhead 30000 1.2 Fixed Factory overhead 112500 4.5 Total Cost 375000 15