Haverhill Electronics (HE) has offered to supply the county government with one model of its security screening device at “cost plus 25 percent.” HE operates a manufacturing plant that can produce 22,000 devices per year, but it normally produces 20,000. The costs to produce 20,000 devices follow. Total Cost Cost per Device Production costs: Materials $ 4,600,000.00 $ 230.00 Labor 5,600,000.00 280.00 Supplies and other costs that will vary with production 1,680,000.00 84.00 Indirect cost that will not vary with production 1,680,000.00 84.00 Variable marketing costs 760,000.00 38.00 Administrative costs (will not vary with production) 19,280,000.00 964.00 Totals $ 33,600,000.00 $ 1,680.00 Based on these data, company management expects to receive $2,100.00 (= $1,680.00 × 125 percent) per device for those sold on this contract. After completing 200 devices, the company sent a bill (invoice) to the government for $33,600,000 (= 200 devices × $2,100.00 per device). The president of the company received a call from a county auditor, who stated that the per device cost should be as follows. Materials $ 230.00 Labor 280.00 Supplies and other costs that will vary with production 84.00 $ 594.00 Therefore, the price per device should be $742.50 (= $594.00 × 125 percent). The county government ignored marketing costs because the contract bypassed the usual selling channels. Required: For each of the four options, calculate the cost basis per device based on the information shown above. Note: Round intermediate calculations and final answers to 2 decimal places. Questions Only the differential production costs could be considered as the cost basis. The total cost per device for normal production of 20,000 devices could be used as the cost basis. The total cost per device for production of 22,000 devices, excluding marketing costs, could be used as the cost basis. The total cost per device for production of 22,000 devices, including marketing costs, could be used as the cost basis. Per Device Cost Basis Recommend Price Per Device Option A 594.00 742.50 Option B 1680.00 2100.00 Option C Option D

Haverhill Electronics (HE) has offered to supply the county government with one model of its security screening device at “cost plus 25 percent.” HE operates a manufacturing plant that can produce 22,000 devices per year, but it normally produces 20,000. The costs to produce 20,000 devices follow. Total Cost Cost per Device Production costs: Materials $ 4,600,000.00 $ 230.00 Labor 5,600,000.00 280.00 Supplies and other costs that will vary with production 1,680,000.00 84.00 Indirect cost that will not vary with production 1,680,000.00 84.00 Variable marketing costs 760,000.00 38.00 Administrative costs (will not vary with production) 19,280,000.00 964.00 Totals $ 33,600,000.00 $ 1,680.00 Based on these data, company management expects to receive $2,100.00 (= $1,680.00 × 125 percent) per device for those sold on this contract. After completing 200 devices, the company sent a bill (invoice) to the government for $33,600,000 (= 200 devices × $2,100.00 per device). The president of the company received a call from a county auditor, who stated that the per device cost should be as follows. Materials $ 230.00 Labor 280.00 Supplies and other costs that will vary with production 84.00 $ 594.00 Therefore, the price per device should be $742.50 (= $594.00 × 125 percent). The county government ignored marketing costs because the contract bypassed the usual selling channels. Required: For each of the four options, calculate the cost basis per device based on the information shown above. Note: Round intermediate calculations and final answers to 2 decimal places. Questions Only the differential production costs could be considered as the cost basis. The total cost per device for normal production of 20,000 devices could be used as the cost basis. The total cost per device for production of 22,000 devices, excluding marketing costs, could be used as the cost basis. The total cost per device for production of 22,000 devices, including marketing costs, could be used as the cost basis. Per Device Cost Basis Recommend Price Per Device Option A 594.00 742.50 Option B 1680.00 2100.00 Option C Option D

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 31P: Jonfran Company manufactures three different models of paper shredders including the waste...

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	Total Cost	Cost per Device
Production costs:
Materials	$ 4,600,000.00	$ 230.00
Labor	5,600,000.00	280.00
Supplies and other costs that will vary with production	1,680,000.00	84.00
Indirect cost that will not vary with production	1,680,000.00	84.00
Variable marketing costs	760,000.00	38.00
Administrative costs (will not vary with production)	19,280,000.00	964.00
Totals	$ 33,600,000.00	$ 1,680.00

Materials	$ 230.00
Labor	280.00
Supplies and other costs that will vary with production	84.00
	$ 594.00

Required:

For each of the four options, calculate the cost basis per device based on the information shown above.

Note: Round intermediate calculations and final answers to 2 decimal places.

Questions

Only the differential production costs could be considered as the cost basis.
The total cost per device for normal production of 20,000 devices could be used as the cost basis.
The total cost per device for production of 22,000 devices, excluding marketing costs, could be used as the cost basis.
The total cost per device for production of 22,000 devices, including marketing costs, could be used as the cost basis.

	Per Device Cost Basis	Recommend Price Per Device
Option A	594.00	742.50
Option B	1680.00	2100.00
Option C
Option D

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