erlal Devices (ID) has offered to supply the state government with one model of its security screening device at "cost plus 20 cent." ID operates a manufacturing plant that can produce 66,000 devices per year, but it normally produces 60,000. The cos duce 60,000 devices follow: Cost per Device Total Cost roduction costs: Materials $ 4,500,000 9,000,000 2,700,000 2,700,000 1,800,000 5,400,000 $26,100,000 $ 75 Labor Supplies and other costs that will vary with production Indirect cost that will not vary with production ariable marketing costs dministrative costs (will not vary with production) "otals 150 45 45 30 90 $ 435 sed on these data, company management expects to receive $522 (= $435 x 120 percent) per monitor for those sold on this ntract. After completing 500 monitors, the company sent a bill (invoice) to the government for $261,000 (= 500 monitors x $522 onitor). e president of the company received a call from a state auditor, who stated that the per monitor cost should be: Materials Labor Supplies and other costs that will vary with production 75 150 45 $ 270 merefore, the price per monitor should be $324 (= $270 x 120 percent). The state government ignored marketing costs because the ontract bypassed the usual selling channels.

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Chapter1: Financial Statements And Business Decisions
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For each of the four situations, calculate the cost basis per device based on the information shown above. (Round intermediate calculations and final answers to 2 decimal places.) 

A. Only the differential production costs could be considered as the cost basis.

B. The total cost per device for normal production of 60,000 devices could be used as the cost basis.

C. The total cost per device for productions of 66,000 devices, excluding marketing costs, could be used as the cost basis.

D. The total cost per device for production of 66,000 devices, including marketing costs, could be used as the cost basis.

perial Devices (ID) has offered to supply the state government with one model of its security screening device at "cost plus 20
ercent." ID operates a manufacturing plant that can produce 66,000 devices per year, but it normally produces 60,000. The costs
oduce 60,000 devices follow:
Cost
per
Device
Total Cost
Production costs:
Materials
$ 4,500,000
9,000,000
2,700,000
2,700,000
1,800,000
5,400,000
$26,100,000
2.
75
Labor
150
Supplies and other costs that will vary with production
Indirect cost that will not vary with production
Variable marketing costs
Administrative costs (will not vary with production)
45
45
30
90
Totals
$ 435
ased on these data, company management expects to receive $522 (= $435 x 120 percent) per monitor for those sold on this
ontract. After completing 500 monitors, the company sent a bill (invoice) to the government for $261,000 (= 500 monitors x $522 p
nonitor).
The president of the company received a call from a state auditor, who stated that the per monitor cost should be:
Materials
75
Labor
150
Supplies and other costs that will vary with production
45
$ 270
Therefore, the price per monitor should be $324 (= $270 x 120 percent). The state government ignored marketing costs because the
contract bypassed the usual selling channels.
Transcribed Image Text:perial Devices (ID) has offered to supply the state government with one model of its security screening device at "cost plus 20 ercent." ID operates a manufacturing plant that can produce 66,000 devices per year, but it normally produces 60,000. The costs oduce 60,000 devices follow: Cost per Device Total Cost Production costs: Materials $ 4,500,000 9,000,000 2,700,000 2,700,000 1,800,000 5,400,000 $26,100,000 2. 75 Labor 150 Supplies and other costs that will vary with production Indirect cost that will not vary with production Variable marketing costs Administrative costs (will not vary with production) 45 45 30 90 Totals $ 435 ased on these data, company management expects to receive $522 (= $435 x 120 percent) per monitor for those sold on this ontract. After completing 500 monitors, the company sent a bill (invoice) to the government for $261,000 (= 500 monitors x $522 p nonitor). The president of the company received a call from a state auditor, who stated that the per monitor cost should be: Materials 75 Labor 150 Supplies and other costs that will vary with production 45 $ 270 Therefore, the price per monitor should be $324 (= $270 x 120 percent). The state government ignored marketing costs because the contract bypassed the usual selling channels.
Therefore, the price per monitor should be $324 (= $270 x 120 percent). The state government ignored marketing costs becau
contract bypassed the usual selling channels.
Required:
For each of the four situations, calculate the cost basis per device based on the information shown above. (Round intermediat
calculations and final answers to 2 decimal places.)
Options:
A. Only the differential production costs could be considered as the cost basis.
B. The total cost per device for normal production of 60,000 devices could be used as the cost basis.
C. The total cost per device for production of 66,000 devices, excluding marketing costs, could be used as the cost basis.
D. The total cost per device for production of 66,000 devices, including marketing costs, could be used as the cost basis.
Per device
Recommended
cost basis
price per device
Option A
63.00
75.60
Option B
435.00
522.00
Option C
432.00
518.40
Option D
465.00
24
558.00
%24
%24
%24
%24
%24
%24
%24
%24
Transcribed Image Text:Therefore, the price per monitor should be $324 (= $270 x 120 percent). The state government ignored marketing costs becau contract bypassed the usual selling channels. Required: For each of the four situations, calculate the cost basis per device based on the information shown above. (Round intermediat calculations and final answers to 2 decimal places.) Options: A. Only the differential production costs could be considered as the cost basis. B. The total cost per device for normal production of 60,000 devices could be used as the cost basis. C. The total cost per device for production of 66,000 devices, excluding marketing costs, could be used as the cost basis. D. The total cost per device for production of 66,000 devices, including marketing costs, could be used as the cost basis. Per device Recommended cost basis price per device Option A 63.00 75.60 Option B 435.00 522.00 Option C 432.00 518.40 Option D 465.00 24 558.00 %24 %24 %24 %24 %24 %24 %24 %24
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