8) Jack\'s Back Porch manufactures rustic furniture. The cost accounting system

Question

8) Jack's Back Porch manufactures rustic furniture. The cost accounting system estimates manufacturing costs to be $270 per table, consisting of 80% variable costs and 20% fixed costs. The company has surplus capacity available. It is Jack's Back Porch's poliey to adda 60% markup to full costs. A large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic style. Jack's Back Porch is invited to submit a bid to the hotel chain. What per unit price will Jack's Back Porch most likely bid on this long-term order? A) S86.40 per unit B) S162.00 per unit C) S345.60 per unit D) $432.00 per unit

Explanation / Answer

Variable cost = $216

+ Mark up = $129.6

___________________

Bid price = $345.6

While quoating the price the fixed cost element is not considered as company has spare capacity to utilize for the order.

Option C is correct.

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