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 profitable since its second year of operation. Don Greenway, Assistant Controller, installed a standard costing system after joining 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 15 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 $0.04 per dose will be rejected.

Greenway has accumulated the following information prior to the preparation of the bid.

Direct labor

$

21.00

per direct-labor hour (DLH)

Variable overhead

$

17.00

per DLH

Fixed overhead

$

25.00

per DLH

Incremental administrative costs

$

2,500

for the order

Production rate

6,000

doses per DLH

1. Calculate the minimum price per dose that North American Pharmaceuticals could bid for the Wyant Memorial Hospital job that would not reduce the pharmaceutical companys income. (Round your answer to 3 decimal places.)

Minimum price per dose

2.Calculate the bid price per dose using total cost and the maximum allowable return specified by Wyant Memorial Hospital.(Round your answer to 3 decimal places.

Minimum price per dose

Suppose that the price per dose that North American Pharmaceuticals, Inc. calculated using the cost-plus criterion specified by Wyant Memorial Hospital is greater than the maximum bid of $0.04 per dose allowed by Wyant. Select the factors that the pharmaceutical companys management should consider before deciding whether or not to submit a bid at the maximum price of $0.04 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.)

Whether the maximum bid of $0.04 contributes toward covering fixed costs.unanswered

Whether there are available jobs on which earnings might be greater.unanswered

Whether North American has excess capacity.