Question

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? Round your answer to two decimal places. $ per unit

Answer 1

Answer:

The unit cost below which Box Elder Power Company should not go in bidding on the government contract is $9.30

Explanation:

Box Elder power company produced 40,000 batteries in the month of May

Total Direct materials = $240,000

Total Direct labor = 100,000

Total Variable factory overhead = 32,000

Total Fixed factory overhead = 150,000

Total manufacturing costs = $522,000

So only relevant costs are:-

Direct Material per unit = $240,000 ÷ 40,000 = $6 0

Direct Labor per unit = $100,000 ÷ 40,000 = $2.5 0

Variable Factory OH per unit = $32,000 ÷ 40,000 = $0.8 0

Therefore total overhead = $9.3 0