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 large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic style for 100 tables. 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

Manufacturing cost - $ 80

50% mark up - $ 80 * 50% - $ 40

Price per unit - $ 80 + $ 40 = $ 120

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