Florida Fruits, Inc., agreed to sell 20,000 cases of a dehydrated fruit drink called Managerial Purposes "Fang" to NASA for use on space flights at "cost plus 20 percent."

Florida Fruits operates a manufacturing plant that can produce 60,000 cases per year. The company normally produces 40,000 cases per year. The costs to produce 40,000 cases are as follows:

Based on the above data, company management expects to receive $67.20 (that is, $56 X 120 percent) per case for the cases sold on this contract. After completing 5,000 cases, the company sent a bill (invoice) to the government for $336,000 (that is, 5,000 cases at $67.20 per case).
The president of the company received a call from NASA, who stated that the per case cost should be:

Therefore, the price per case should be $46.80 (that is, $39 x 120 percent).
NASA ignored marketing costs because the contract bypassed the usual selling channels.
What price would you recommend? Why? (Note: You need not limit yourself to the costs selected by the company or by the government agent.)

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Materials. Labor .. Supplies and other indirect costs that will vary with production Indirect costs that will not vary with production .. Variable marketing costs.... Administrative costs (all fixed) Totals... Total Per Case $ 480,000 $12 760,000 19 320,000 8 440,000 11 80,000 2 160,000 4 $2,240,000 $56