Question

Exam -Ch 1.23 Tools Imperial Devices (ID) has offered to supply the state government with one model of its security screening device at cost plus 20 percent." ID operates a manufacturing plant that can produce 22.000 devices per year, but it normally produces 20,000. The costs to produce 20.000 devices follow. Total cost Cost per Device Production costar Materials Labor Supplies and other costs that will vary with production Indirect cost that will not vary with production Variable marketing costs Administrative costs will not vary with production) Totals $ 1.340.000 1,640,000 760,000 600,000 1,700,000 1,100,000 $ 7.140,000 $ 67.00 82.00 38.00 30.00 85.00 55.00 $ 357.00 Based on these data, company management expects to receive $428.40 (-$357.00 x 120 percent) per monitor for those sold contract. After completing 2,000 monitors, the company sent a bill invoice) to the government for $856,800 = 2,000 monito $428.40 per monitor). The president of the company received a call from a state auditor, who stated that the per monitor cost should be: Materials wabor upplies and other costs that will vary with production $ 67.00 82.00 38.00 $ 187.00 ore, the price per monitor should be $224.40 (= $187.00 120 percent). The state government ignored marke atract bypassed the usual selling channels.

Answer 1

	Per device cost basis	Recommended Price Per Device
Option A	187	224.40
Option B	357	428.40
Option C	264.27	317.124
Option D	349.27	419.24

workings:

		A	B	C	D
Materials (variable)	67	67	67	67	67
Labor (variable)	82	82	82	82	82
Supplies (variable)	38	38	38	38	38
Indirect costs (fixed)	600,000		30 (600,000/20,000)	27.27 (600,000/22,000)	27.27 (600,000/22,000)
Marketing (variable)	85		85		85
Administrative (fixed)	1,100,000		55 (1,100,000/20,000)	50 (1,100,000/22,000)	50 (1,100,000/22,000)
Per device cost basis		187	357	264.27	349.27
Per device price (Cost + 20%)		224.40 (187*1.20)	428.40 (357*1.20)	317.124 (264.27*1.20)	419.24 (349.27*1.20)