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. 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

Backwoods Incorporated All Amounts in $ Manufacturing Costs per table 80 Markup added to full costs @ 50% 40 The order which the hotel chain proposes is a long-term order Minimum price per unit for 120 bidding by Backwoods

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