direct labor $8 Direct materials $9 Variable manufacturing overhead $7 Verbal sa
ID: 2551084 • Letter: D
Question
direct labor $8
Direct materials $9
Variable manufacturing overhead $7
Verbal sales commission $6
Assume that there would be no variable sales commission on the special order determine the lowest unit price that Douglas can bid without reducing its current level of operating income .
Assume the company desires at 36% contribution margin ratio from this sale and that a special sales commission of 4% of the bid price will be applied to the order instead of its normal six dollar variable sales commission. Determine the bid price per unit given these unique circumstances
Explanation / Answer
Answer
A
The lowest unit price=Direct materials + direct labor + Variable manufacturing overhead
=9+8+7 =24
B.
The bid price per unit given these unique circumstances:
Bid price = Direct materials + direct labor + Variable manufacturing overhead +Sales commission +CM ratio
Bid price =9+8+7+bid price*0.04 +bid price*0.36
Bid price = 24+bid price0.40
Bid price = $40
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