Carrier Fabrication Company (CFC) manufactures and sells only one product, a special front-mounting bicycle rack for large vehicles. CFC entered into a one-time contract to produce an additional 1,000 racks for the local public transit authority at a price of cost plus 20%. The company's plant has a capacity of 9,000 units per year, but normal production is 4,000 units per year. The annual costs to produce those 4,000 units are as follows:

Materials $192,000

Labour 304,000

Supplies and other variable manufacturing indirect costs 128,000

Fixed indirect costs (allocated based on normal capacity) 176,000

Variable marketing costs 32,000

Administrative costs (all fixed) 64,000

After completing half of the order, the company billed the authority for $134,400. However, the transit authority's purchasing agent then called the president of CFC to dispute the invoice. The purchasing agent stated that the invoice should have been for $93,600.

Instructions

a. Calculate the components of the total cost unit price charged to the transit authority, as determined by CFC.

b. Calculate the components of the variable manufacturing cost unit price that should have been charged, as determined by the transit authority's purchasing agent. Unit price = $156

c. What price per unit would you recommend? Explain your reasoning. (Note: You do not need to limit yourself to the costs selected by the company or by the agent.)