Chat with AI
Fundamentals of Cost Accounting 2nd Edition by William Lanen, Carolyn Wells, Michael Maher
Edition 2ISBN: 978-0077274993Fundamentals of Cost Accounting 2nd Edition by William Lanen, Carolyn Wells, Michael Maher
Edition 2ISBN: 978-0077274993 Exercise 2
Cost Data for Managerial Purposes
Tops Tools has offered to supply the Department of the Army with screwdrivers at "cost plus 20 percent." Tops Tools operates a manufacturing plant that can produce 220,000 cases of screwdrivers per year, but it normally produces 200,000. The costs to produce 200,000 cases of screwdrivers follow:
Based on these data, company management expects to receive $34.80 (= $29 × 120 percent) per case for those sold on this contract. After completing 5,000 cases, the company sent a bill (invoice) to the government for $174,000 (= 5,000 cases × $34.80 per case).
The president of the company received a call from an army representative, who stated that the per case cost should be
Therefore, the price per case should be $21.60 (= $18 × 120 percent). The army ignored marketing costs because the contract bypassed the usual selling channels.
Required
What price would you recommend Why ( Note: You need not limit yourself to the costs selected by the company or by the government agent.)
Tops Tools has offered to supply the Department of the Army with screwdrivers at "cost plus 20 percent." Tops Tools operates a manufacturing plant that can produce 220,000 cases of screwdrivers per year, but it normally produces 200,000. The costs to produce 200,000 cases of screwdrivers follow:
Based on these data, company management expects to receive $34.80 (= $29 × 120 percent) per case for those sold on this contract. After completing 5,000 cases, the company sent a bill (invoice) to the government for $174,000 (= 5,000 cases × $34.80 per case).
The president of the company received a call from an army representative, who stated that the per case cost should be
Therefore, the price per case should be $21.60 (= $18 × 120 percent). The army ignored marketing costs because the contract bypassed the usual selling channels.
Required
What price would you recommend Why ( Note: You need not limit yourself to the costs selected by the company or by the government agent.)
Explanation
Verified
Verified
Tables showing cost at different scenario:
From the above table
Ignoring the marketing cost I would say option A C. But in actual practices ignoring marketing and taking all other cost Option is C is perfect as because cost that will not vary with production so, is a fixed cost and we have to incur even if we don't do production. The same goes for Administrative cost.
So, Option C is the perfect cost.
Working note:
Calculate per unit cost:
Cost that will not vary with productions
Calculate total cost including plus 20% cost:
From the above tableIgnoring the marketing cost I would say option A C. But in actual practices ignoring marketing and taking all other cost Option is C is perfect as because cost that will not vary with production so, is a fixed cost and we have to incur even if we don't do production. The same goes for Administrative cost.
So, Option C is the perfect cost.
Working note:
Calculate per unit cost:
Cost that will not vary with productions
Calculate total cost including plus 20% cost: 
Fundamentals of Cost Accounting 2nd Edition by William Lanen, Carolyn Wells, Michael Maher
Why don’t you like this exercise?
Other Minimum 8 character and maximum 255 character
Character 255
