PROBLEM #2

Backwoods Incorporated manufactures rustic furniture. The cost accounting system estimates manufacturing costs to be $80 per table, consisting of 70% variable costs and 30% fixed costs. The company has surplus capacity available. It is Backwoods policy to add a 50% markup to full costs for only long-term orders.

1. Backwoods Incorporated is invited to bid on an order to supply 100 rustic tables. What is the lowest price Backwoods should bid on this one-time-only (short-term) special order?
2. A large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic style. Backwoods Incorporated is invited to submit a bid to the hotel chain. What is the lowest price per unit Backwoods should bid on this long-term order?

3. Explain your relevant cost analysis below. Include the effect of the short-term versus the long-term horizon on the bid price in your response. Cite at least one important qualitative factor to support your decision for this case.