Alameda Instruments (AI) has offered to supply the Air Force with computer monitors at cost plus 20 percent. AI operates a manufacturing plant that can

Alameda Instruments (AI) has offered to supply the Air Force with computer monitors at “cost plus 20 percent.” AI operates a manufacturing plant that can produce 44,000 monitors per year, but it normally produces 40,000. The costs to produce 40,000 monitors follow:

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 Air Force auditor, 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 Air Force ignored marketing costs because the contract bypassed the usual selling channels.

Required
What price would you recommend?Why?

Cost per Total Cost Monitor Production costs: $1,000,000 $25 Materials.. Labor Supplies and other costs that will vary with production Indirect cost that will not vary with production 2,000,000 50 600.000 15 600,000 15 400,000 10 1200,000 30 $5,800,000 $145 Variable marketing costs Administrative costs (will not vary with production).... Totals