portable power company expects to operate at 80- of productive capacit.docx

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The document summarizes the budgeted manufacturing costs for Portable Power Company to produce 25,000 batteries in July. It lists direct material at $162,500, direct labor at $70,000, and variable and fixed factory overheads at $30,000 and $112,500 respectively, for a total cost of $375,000. It also notes the company has an opportunity to bid on a contract for 2,500 additional batteries by July 31, and asks what the lowest unit cost should be to not lose money given production is at 80% capacity.

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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:
direct materialÂ Â 162,500
direct laborÂ Â Â 70,000
variable factory overheadÂ Â 30,000
fixed factory overheadÂ Â Â 112,500
total manufacturing costsÂ Â Â 375,000
the company has an opportunity to submit a bid for 2,500 batteries t be delivered by july 31 to a
government agency. if the contract is obtained it is anticapated 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 cntract?
Solution
The per unit bid should not be less than $ 10.5 & the total amount of bid will not be less than $
26250/-
Particulars Total Per Unit Cost
Direct Material 162500/25000 6.5
Direct labour 70000/25000 2.8
Variable Factory Overheads 30000/25000 1.2
Total 10.5
Total Bid 2500*10.5 26250

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