2C2I BASIC COMPUTER COMPANY (BCC) SELLS ITS MICRO-COMPUTERS USING BID...

237.

CSO: 2C2c

LOS: 2C2i

Basic Computer Company (BCC) sells its micro-computers using bid pricing. It

develops 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 $925 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 12

labor hours. BCC’s variable manufacturing overhead is $2 per labor hour, fixed

manufacturing overhead is $3 per labor hour, and incremental administrative costs are $8

per computer assembled.

The company has received a request from the School Board for 500 computers. BCC’s

management expects heavy competition in bidding for this job. As this is a very large

order for BCC, and could lead to other educational institution orders, management is

extremely interested in submitting a bid which would win the job, but at a price high

enough so that current net income will not be unfavorably impacted. Management

believes this order can be absorbed within its current manufacturing facility. Which one

of the following bid prices should be recommended to BCC’s management?

a.

$764.00.

b.

$772.00.

c.

$849.20.

d.

$888.80.