Question
Graphic Components (GC) has offered to supply the Federal Aviation Agency (FAA) with computer monitors at cost plus 20 percent. GC operates a manufacturing plant
Graphic Components (GC) has offered to supply the Federal Aviation Agency (FAA) with computer monitors at "cost plus 20 percent." GC operates a manufacturing plant that can produce 22,000 monitors per year, but it normally produces 20,000. The costs to produce 20,000 monitors follow:
Total Cost | Cost per Monitor | |||||
Production costs: | ||||||
Materials | $ | 1,000,000 | $ | 25 | ||
Labor | 2,000,000 | 50 | ||||
Supplies and other costs that will vary with production | 600,000 | 15 | ||||
Indirect cost that will not vary with production | 600,000 | 15 | ||||
Variable marketing costs | 400,000 | 10 | ||||
Administrative costs (all fixed) | 1,200,000 | 30 | ||||
Totals | $ | 5,800,000 | $ | 145 | ||
Based on these data, company management expects to receive $174 (= $145 120 percent) per monitor for those sold on this contract. After completing 500 monitors, the company sent a bill (invoice) to the government for $87,000 (= 500 monitors $174 per monitor). |
The president of the company received a call from an FAA representative, who stated that the per monitor cost should be |
Materials | $ | 25 |
Labor | 50 | |
Supplies and other costs that will vary with production | 15 | |
$ | 90 | |
Therefore, the price per monitor should be $108 (= $90 120 percent). The FAA ignored marketing costs because the contract bypassed the usual selling channels. |
Required: |
What is the price per computer monitor that should be charged by Graphic Components under the following options? (Round your answers to 2 decimal places. Omit the "$" sign in your response.) |
Options: | |
A. | Only the differential production costs are used as the cost basis. |
B. | The total cost per monitor for normal production of 40,000 monitors are used as the cost basis. |
C. | The total cost per monitor for production of 44,000 monitors, excluding marketing costs, are used as the cost basis. |
D. | The total cost per monitor for production of 44,000 monitors, including marketing costs, are used as the cost basis. |
Price per monitor | |
Option A | $ |
Option B | $ |
Option C | $ |
Option D | $ |
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