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Imperial Devices (ID) has offered to supply the state government with one model of its security screening device at cost plus 20 percent. ID

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Imperial Devices (ID) has offered to supply the state government with one model of its security screening device at "cost plus 20 percent." ID operates a manufacturing plant that can produce 22,000 devices per year, but it normally produces 20,000. The costs to produce 20,000 devices follow: Production costs: Materials Labor Supplies and other costs that will vary with production Indirect cost that will not vary with production Variable marketing costs Administrative costs (will not vary with production) Totals Total Cost Cost per Device $ 1,040,000 $ 52.00 1,640,000 82.00 800,000 40.00 600,000 30.00 1,520,000 76.00 1,200,000 60.00 $ 6,800,000 $ 340.00 Based on these data, company management expects to receive $408.00 (= $340.00 120 percent) per monitor for those sold on this contract. After completing 2,000 monitors, the company sent a bill (invoice) to the government for $816,000 (= 2,000 monitors $408.00 per monitor). The president of the company received a call from a state auditor, who stated that the per monitor cost should be: Materials Labor Supplies and other costs that will vary with production $ 52.00 82.00 40.00 $ 174.00

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