# Problem 19 - \$52.00 Allowable return (.15 \$52.00) .

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Problem 15-43 (30 minutes) 1. The minimum price per blanket that Detroit Synthetic Fibers, Inc. could bid without reducing the company’s net income is \$48 calculated as follows: Raw material (6 lbs. @ \$3.00 per lb.) . ....................... \$18.00 Direct labor (.25 hrs. @ \$14.00 per hr.) . .................... 3.50 Machine time (\$20.00 per blanket) . .......................... 20.00 Variable overhead (.25 hrs. @ \$6.00 per hr.) . ............. 1.50 Administrative costs (\$5,000 ÷ 1,000) . ..................... 5 .00 Minimum bid price . ................................................ \$48 .00 2. Using the full cost criteria and the maximum allowable return specified, Detroit Synthetic Fibers, Inc.’s bid price per blanket would be \$59.80 calculated as follows: Relevant costs from requirement (1) . ........................ \$48.00 Fixed overhead (.25 hrs. @ \$16.00 per hr.) . ............... 4 .00 Subtotal . ...............................................................

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Unformatted text preview: \$52.00 Allowable return (.15 \$52.00) . ............................... 7 .80 Bid price . .............................................................. \$59 .80 3. Factors that management should consider before deciding whether to submit a bid at the maximum acceptable price of \$50 per blanket include the following: The company should be sure there is sufficient excess capacity to fill the order and that no additional investment is necessary in facilities or equipment that would increase fixed costs. If the order is accepted at \$50 per blanket, there will be a \$2 contribution per blanket to cover fixed costs. However, the company should consider whether there are other jobs that would make a greater contribution. Acceptance of the order at a low price could cause problems with current customers who might demand a similar pricing arrangement....
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## This document was uploaded on 02/01/2011.

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Problem 19 - \$52.00 Allowable return (.15 \$52.00) .

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