Alameda Instruments (Al) has offered to supply the Air Force with computer monit

Question

Alameda Instruments (Al) has offered to supply the Air Force with computer monitors at "cost plus 20 peroent" Al operates a manufacturing plant that can produce 22,000 monitors per year, but it normally percen produces 20,000. The costs to produce 20,000 monitors follow: Cost per Monitor Total Cost Production costs: Materials Labor Supplies and other costs that will vary with production Indirect cost that will not vary with production $1.180,000 59 84 42 28 89 60 1,680,000 840,000 560,000 1,780,000 1,200,000 Variable marketing costs Administrative costs (all fixed) Totals $7,240,000 $362 Based on these data, oompany management expects to receive S434.4 (= S382 120 percent) per monitor for those sold on this contract. After completing 2,000 monitors, the company sent a bill (invoioe) to the government for S868, 800 (= 2.000 monitors × $434.4 per monitor). The president of the company received a call from an Air Foroe auditor, who stated that the per monitor cost should be Materials Labor Supplies and other costs that will vary with production S 59 84 42 s 185

Explanation / Answer

Costs A B C D Materials (Variabe) $59 $59 $59 $59 $59 Labour(Variabe) 84 84 84 84 84 Supplies(Variabe) 42 42 42 42 42 Indirect cost (Fixed) 560,000 N/A 28 25.45 25.45 Marketing(Variabe) 89 N/A 89 N/A 89 Administrative (Fixed) 1,200,000 N/A 60 54.54 54.54 Per monitor Cost basis $185 $362 $264.99 $353.99 Per monitor price (Cost+20%) $222 $434 $317.98 $424.87 a $28.00 = $560,000 ÷ 20,000 units. b $25.45 = $560,000 ÷ 22,000 units. c $60 = $1,200,000 ÷ 20,000 units. d $54.54 = $1,200,000 ÷ 22,000 units.

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