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.