Graphic Components (GC) has offered to supply the Federal Aviation Agency (FAA)

Question

Graphic Components (GC) has offered to supply the Federal Aviation Agency (FAA) with computer monitors at "cost plus 20 percent." GC operates a manufacturing plant that can produce 22,000 monitors per year, but it normally produces 20,000. The costs to produce 20,000 monitors follow:

      Based on these data, company management expects to receive $174 (= $145 × 120 percent) per monitor for those sold on this contract. After completing 500 monitors, the company sent a bill (invoice) to the government for $87,000 (= 500 monitors × $174 per monitor).

      The president of the company received a call from an FAA representative, who stated that the per monitor cost should be

       Therefore, the price per monitor should be $108 (= $90 × 120 percent). The FAA ignored marketing costs because the contract bypassed the usual selling channels.

What is the price per computer monitor that should be charged by Graphic Components under the following options? (Round your answers to 2 decimal places. Omit the "$" sign in your response.)

The total cost per monitor for production of 44,000 monitors, excluding marketing costs, are used as the cost basis.

The total cost per monitor for production of 44,000 monitors, including marketing costs, are used as the cost basis.

Total Cost Cost per
Monitor   Production costs:        Materials $ 1,000,000 $ 25        Labor 2,000,000 50        Supplies and other costs that will vary with production 600,000 15        Indirect cost that will not vary with production 600,000 15   Variable marketing costs 400,000 10   Administrative costs (all fixed) 1,200,000 30   Totals $ 5,800,000 $ 145

Explanation / Answer

Option

A

Option

B

Option

C

Option

D

13.64**

Per monitor price

(Cost+20%)

***(1200000/40000=30)

****(1200000/44000=27.27)

Cost

Option

A

Option

B

Option

C

Option

D

Material(variable) 25 25 25 25 25 Labour(variable) 50 50 50 50 50 Supplies(variable) 15 15 15 15 15 Indirect cost(fixed) 600000 - 15*

13.64**

14.65 Marketing(variable) 10 - 10 - 10 Administration(fixed) 1200000 - 30*** 27.27**** 27.27 Per monitor cost 90 145 130.91 140.91

Per monitor price

(Cost+20%)

108 174 157.09 169.09 *(600000/40000=15) **(600000/44000=13.64)

***(1200000/40000=30)

****(1200000/44000=27.27)

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