Chapter 12, Problem 12E

Exercise 4-11A    How the allocation of fixed cost affects a pricing decision

Arrow Manufacturing Co. expects to make 50.000 chairs during the 2017 accounting period. The company made 3,000 chairs in January. Materials and labor costs for January were $36,000 and $48,000, respectively. Arrow produced 4,000 chairs in February. Material and labor costs for February were $48,000 and $60,000, respectively. The company paid the $480,000 annual rental fee on its manufacturing facility on January 1, 2017.

Required

Assuming that Arrow desires to sell its chairs for cost plus 40 percent of cost, what price should be charged for the chairs produced in January and February?