Backwoods Incorporated manufactures rustic furniture. The cost accounting system

Question

Backwoods Incorporated manufactures rustic furniture. The cost accounting system estimates manufacturing costs to be $80 per table, consisting of 70% variable costs and 30% fixed costs. The company has surplus capacity available. It is Backwoods’ policy to add a 50% markup to full costs for only long-term orders.

a.Backwoods Incorporated is invited to bid on an order to supply 100 rustic tables. What is the lowest price Backwoods should bid on this one-time-only (short-term) special order?

b.      A large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic style. Backwoods Incorporated is invited to submit a bid to the hotel chain. What is the lowest price per unit Backwoods should bid on this long-term order?

Explanation / Answer

Answers,

a.The lowest price Backwoods should bid on the 100 table one-time special order is$5,600 = Variable costs ($80 x .70 x 100 tables), the short-term incremental costs

b.The lowest price Backwoods should bid on the long-term hotel chain order is$120 per table = Full costs $80 + 50% markup, the long-term targeted price.

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