60.1K

Verified Solution

Link Copied!

Graphic Components (GC) has offered to supply the Federal Aviation Agency (FAA) with computer monitors at "cost plus 20 percent." GC operates a manufacturing plant that can produce 22,000 monitors per year, but it normally produces 20,000. The costs to produce 20,000 monitors follow:

	Total Cost			Cost per Monitor
Production costs:
Materials	$	1,000,000		$	50
Labor		2,000,000			100
Supplies and other costs that will vary with production		600,000			30
Indirect cost that will not vary with production		600,000			30
Variable marketing costs		400,000			20
Administrative costs (all fixed)		1,200,000			60
Totals	$	5,800,000		$	290

Based on these data, company management expects to receive $348 (= $290 120 percent) per monitor for those sold on this contract. After completing 500 monitors, the company sent a bill (invoice) to the government for $174,000 (= 500 monitors $348 per monitor).

The president of the company received a call from an FAA representative, who stated that the per monitor cost should be

Materials	$	50
Labor		100
Supplies and other costs that will vary with production		30
	$	180

Therefore, the price per monitor should be $216 (= $180 120 percent). The FAA ignored marketing costs because the contract bypassed the usual selling channels.

Required:

What is the price per computer monitor that should be charged by Graphic Components under the following options? (Round your answers to 2 decimal places. Omit the "$" sign in your response.)

Options:
A.	Only the differential production costs are used as the cost basis.
B.	The total cost per monitor for normal production of 20,000 monitors are used as the cost basis.
C.	The total cost per monitor for production of 22,000 monitors, excluding marketing costs, are used as the cost basis.
D.	The total cost per monitor for production of 22,000 monitors, including marketing costs, are used as the cost basis.

	Price per monitor
Option A	$
Option B	$
Option C	$
Option D	$

Answer & Explanation Solved by verified expert

See Answer