2C3R BASIC COMPUTER COMPANY (BCC) SELLS ITS MICROCOMPUTERS USING BID...

275.

CSO: 2C3b

LOS: 2C3r

Basic Computer Company (BCC) sells its microcomputers using bid pricing. It develops

its bids on a full cost basis. Full cost includes estimated material, labor, variable

overheads, fixed manufacturing overheads, and reasonable incremental computer

assembly administrative costs, plus a 10% return on full cost. BCC believes bids in

excess of $1,050 per computer are not likely to be considered.

BCC’s current cost structure, based on its normal production levels, is $500 for materials

per computer and $20 per labor hour. Assembly and testing of each computer requires 17

labor hours. BCC expects to incur variable manufacturing overhead of $2 per labor hour,

fixed manufacturing overhead of $3 per labor hour, and incremental administrative costs

of $8 per computer assembled.

BCC has received a request from a school board for 200 computers. Using the full-cost

criteria and desired level of return, which one of the following prices should be

recommended to BCC’s management for bidding purposes?

a.

$874.00.

b.

$882.00.

c.

$961.40.

d.

$1,026.30.