Question

Accepting Business at a Special Price Box Elder Power Company expects to operate at 85% of productive capacity during May. The total manufacturing costs for May for the production of 40,000 batteries are budgeted as follows: Direct materials $240,000 Direct labor 100,000 Variable factory overhead 32,000 Fixed factory overhead 150,000 Total manufacturing costs $522,000 The company has an opportunity to submit a bid for 5,000 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 Box Elder Power Company should not go in bidding on the government contract

Answer 1

Answer:

$9.3

Explanation:

The computation of total overhead unit cost is shown below:-

Actual full capacity = Production of batteries ÷ Productive capacity

= 40,000 units ÷ 85%

= 47,059

Direct Material per unit = Direct material ÷ Production of batteries

= $240,000 ÷ 40,000

= $6

Direct Labor per unit = Direct Labor ÷ Production of batteries

= $100,000 ÷ 40,000

= $2.5

Variable Factory Overhead per unit = Variable factory overhead ÷ Production of batteries

= $32,000 ÷ 40,000

= $0.8

Total overhead per unit = Direct Material per unit  + Direct Labor per unit + Variable Factory Overhead per unit

= $6 + $2.5 + $0.8

= $9.3

Thus, we have applied the above formula.