A.
North American Pharmaceuticals, Inc.. specializes in packaging bulk drugs in standard dosages for local hospitals. The company has been in business for seven years and has been protable since its second year of operation. Don Greenway, Assistant Controller. installed a standard costing system atterjoining the company three years ago. Wyant Memorial Hospital has asked North American Pharmaceuticals to bid on the packaging of three million doses of medication at total cost plus a return on total cost of no more than 25 percent. Wyant defines total cost as including all variable costs of performing the service. a reasonable amount of fixed overhead. and reasonable administrative costs. The hospital will supply all packaging materials and ingredients. Wyant has indicated that any bid over $0.06 per dose will be rejected. Greenway has accumulated the following information prior to the preparation ofthe bid. Direct labor $23.66 per direct-labor hour (DLH) Variable overhead $19.38 per DLH Fixed overhead $27.38 per DLH Incremental administrative costs $2,799 for the order Production rate 5,999 Closes per DLH \\ Problem 15-39 Part 1 Required: 1. Calculate the minimum price per dose that North American Pharmaceuticals could bid for the Wyant Memorial Hospitaljob that would not reduce the pharmaceutical company's income. {Round your answer to 3 decimal places.) North American Pharmaceuticals, Inc.. specializes in packaging bulk drugs in standard dosages for local hospitals. The company has been in business for seven years and has been protable since its second year of operation. Don Greenway, Assistant Controller. installed a standard costing system aerjoining the company three years ago. Wyant Memorial Hospital has asked North American Pharmaceuticals to bid on the packaging ofthree million doses of medication at total cost plus a return on total cost of no more than 25 percent. Wyant defines total cost as including all variable costs of performing the service, a reasonable amount of fixed overhead. and reasonable administrative costs. The hospital will supply all packaging materials and ingredients. Wyant has indicated that any bid over $0.06 per dose will be rejected. Greenway has accumulated the following information prior to the preparation of the bid. Direct labor $23.38 per directlabor hour (DLH) Variable overhead $19.88 per DLH Fixed overhead $27.89 per DLH Incremental administrative costs $2,788 for the order Production rate 5,888 doses per DLH Problem 15-39 Part 2 2. Calculate the bid price per dose using total cost and the maximum allowable return specied by Wyant Memorial Hospital. {Round your answer to 3 decimal place-5.} i 3. Suppose that the price per dose that North American Pharmaceuticals. lnc.. calculated using the costplus criterion specified by Wyant Memorial Hospital is greater than the maximum bid of $0.06 per dose allowed by Wyant. Select the factors that the pharmaceutical company's management should consider before deciding whether or not to submit a bid at the maximum price of $0.06 per dose that Wyant allows. (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.) D Whether the maximum bid of $0.06 contributes toward covering fixed costs. El Whether there are available jobs on which earnings might be greater. D Whether North American has excess capacity. For many years, Leno Corporation has used a straightforward costplus pricing system, marking its goods up approximately 25 percent of total cost. The company has been profitable; however, it has recently lost considerable business to foreign competitors that have become very aggressive in the marketplace. These firms appear to be using target costing. An example of Leno's problem is typied by item no. 8976. which has the following unitcost characteristics: Direct material $139 Direct labor 215 Manufacturing overhead 145 Selling and administrative expenses 89 The going market price for an identical product of comparable quality is $580, which is significantly below what Leno is charging.
