Carrier Fabrication Company (CFC) manufactures and sells only one product, a special front-mounting bicycle rack for large vehicles. CFC entered into a one-time contract to produce an additional 1,000 racks for the local public transit authority at a price of "cost plus 20%." The company's plant has a capacity of 9,000 units per year, but normal production is 4,000 units per year. The annual costs to produce those 4,000 units are as follows:

After completing half of the order, the company billed the authority for $134,400. However, the transit authority's purchasing agent then called the president of CFC to dispute the invoice. The purchasing agent stated that the invoice should have been for $93,600.
Instructions
(a) Calculate the components of the total cost unit price charged to the transit authority, as determined by CFC.
(b) Calculate the components of the variable manufacturing cost unit price that should have been charged, as determined by the transit authority's purchasing agent.
(c) What price per unit would you recommend? Explain your reasoning.

Transcribed Image Text:

Materials Labour Supplies and other variable manufacturing indirect costs Fixed indirect costs (allocated based on normal capacity) Variable marketing cost:s Administrative costs (all fixed) $192,000 304,000 128,000 176,000 32,000 64,000 had