Question

Forever Ready Company expects to operate at 88% of productive capacity during May. The total manufacturing costs for May for the production of 29,040 batteries are budgeted as follows:

Direct materials $225,100
Direct labor 82,800
Variable factory overhead 23,156
Fixed factory overhead 46,000
Total manufacturing costs $377,056

The company has an opportunity to submit a bid for 2,000 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.

Required:
What is the unit cost which Forever Ready Company should not go in bidding on the government contract? Round your answer to two decimal places.

Answer 1

$11.40

Step-by-step explanation:

Calculation to determine the unit cost which Forever Ready Company should not go in bidding on the government contract

FOREVER READY COMPANY UNIT COST

Direct materials $7.75

($225,100/29,040)

Direct labor $2.85

($82,800/ 29,040)

Variable factory overhead $0.80

($23,156/ 29,040)

Total Per unit cost $11.40

($7.75+$2.85+$0.80)

Therefore the unit cost which Forever Ready Company should not go in bidding on the government contract is $11.40