# Problem 3 - Binder Manufacturing produces small electric...

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Binder Manufacturing produces small electric motors used by appliance manuf In the past year, the company has experienced severe excess capacity due to co from a foreign company that has entered Binder's market. The company is cune bidding on a potential order from Dacon Appliances for 6,000 Model 350 motors The estimated cost of each motor is \$55, as follows: Direct material \$ 25 Directlabor 5 Overhead 15 Total \$ 45 The predetermined overhead rate is \$3 per direct labor dollar. This was estimate dividing estimated annual overhead (\$15,000,000) by estimated annual direct lab (\$5,000,000). The \$15,000,000 of overhead is composed of \$6,000,000 of variable and \$9,000,000 of fixed costs. The largest fixed cost relates to depreciation of p equipment. Required a. With respect to overhead, what is the opportunity cost of producing a Model 3 motor? b. Suppose Binder can win the Dacon business by bidding a price of \$39 per mo (but no higher price will result in a winning bid). Should Binder bid \$39?

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