Cost Data for Managerial Purposes: Lamar Corporation entered into an agreement to sell 20.000 units of a product to a government agency this year at "cost plus 20 percent." Lamar operates a manufacturing plant that can produce 60.000 units per year. The company normally produces 40,000 units per year. The costs to produce 40.000 units are as follows:

Based on the above data, company management expects to receive cash equal to $67.20 (that is. $56 120 percent) per unit for the units sold on this contract. After completing 5,000 units. the company sent a bill (invoice) to the government for $336.000 (that is, 5,000 units at $67.20 per unit). The president of the company received a call from the contracting agent for the government. The agent stated that the per unit cost should be:

Therefore, the price per unit should be $46.80 (that is. $39 * 120 percent). The agent ignored marketing costs because the contract bypassed the usual selling channels.

Required:

What price would you recommend? Why? (Note: You need not limit yourself to thei 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 Per Total Unit $ 480,000 $12 760,000 19 320,000 440,000 11 80,000 160,000 8124 $2,240,000 $56