Pricing dispute. Urban Solutions manufactures bicycle parking systems. With the push towards environmentally friendly modes of transportation, it sees a huge opportunity to expand its business by selling these systems to large cities and private downtown businesses such as hotels. It sees its bicycle storage solutions as being replacements to the downtown car parkades. It is currently preparing a bid for the City of Vancouver. The city is interested in purchasing 1,400 of these bicycle parking systems. The City has agreed to a cost plus 25%

price. The company has capacity to produce 15,000 units and is currently operating at 70% of its capacity. Cost data for the production of the order for the City of Vancouver are as follows:

On completion of the order, Urban Solutions billed the City of Vancouver $1,106,000 (based on 1,400 at a unit price of $790). The City is disputing the charge, and argues that the unit price under the contract should be $588.13.
REQUIRED 1. How did the company determine the unit selling price of $790?
2. How did the City determine its unit selling price of $588.13?
3. What price do you recommend should be charged by Urban Solutions and how would you resolve this dispute?LO1

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Direct materials Direct labour Indirect materials (variable) Fixed overhead allocated Variable selling and distribution costs Variable administration costs Fixed administration costs (indirect) $175,000 $245,000 $161,000 $168,000 $ 42,000 $ 35,700 $ 58,100