Trade Winds Company expects to operate at 85% of productive capacity during June. The total manufacturing costs for June for the production of 42,500 batteries are budgeted as follows:
Direct materials ....... $340,000
Direct labor ......... 170,000
Variable factory overhead ..... 63,750
Fixed factory overhead .... 127,500
Total manufacturing costs ... $701,250
The company has an opportunity to submit a bid for 6,000 batteries to be delivered by June 30 to a government agency. If the contract is obtained, it is anticipated that the additional activity will not interfere with normal production during June or increase the selling or administrative expenses.
a. What is the June budgeted cost per battery for the production of 42,500 batteries?’
b. What is the unit cost below which Trade Winds Company should not go in bidding on the government contract?