12th Edition

ISBN: 9781259969515

Author: HILTON

Publisher: RENT MCG

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Textbook Question

Chapter 15, Problem 39P

North American Pharmaceuticals, Inc. specializes in packaging bulk drugs in standard dosages for local hospitals. The company has been in business for seven years and has been profitable since its second year of operation. Don Greenway, Assistant Controller, installed a standard costing system after joining the company three years ago.

Wyant Memorial Hospital has asked North American Pharmaceuticals to bid on the packaging of one million doses of medication at total cost plus a return on total cost of no more than 15 percent. Wyant defines total cost as including all variable costs of performing the service, a reasonable amount of fixed overhead, and reasonable administrative costs. The hospital will supply all packaging materials and ingredients. Wyant has indicated that any bid over $.015 per dose will be rejected.

Greenway has accumulated the following information prior to the preparation of the bid.

Chapter 15, Problem 39P, North American Pharmaceuticals, Inc. specializes in packaging bulk drugs in standard dosages for

Required:

1. Calculate the minimum price per dose that North American Pharmaceuticals could bid for the Wyant Memorial Hospital job that would not reduce the pharmaceutical company’s income.
2. Calculate the bid price per dose using total cost and the maximum allowable return specified by Wyant Memorial Hospital.
3. Independent of your answer to requirement (2), suppose that the price per dose that North American Pharmaceuticals, Inc. calculated using the cost-plus criterion specified by Wyant Memorial Hospital is greater than the maximum bid of $.015 per dose allowed by Wyant. Discuss the factors that the pharmaceutical company’s management should consider before deciding whether or not to submit a bid at the maximum price of $.015 per dose that Wyant allows.

Definition Definition System of assigning an estimated cost to the product (instead of the actual cost) so that the product cost can be determined well in advance and the pricing of the product can be done on time. Since the actual cost cannot be predicted at the initial stage of the production process, the estimated cost is recorded in the books. Any deviation of the estimated cost of the actual cost is adjusted in the books at the end of the period.

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Chapter 15, Problem 38P

Chapter 15, Problem 40P

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Chapter 15 Solutions

Managerial Accounting

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Solution Summary: The author explains how NA Pharmaceuticals could bid at 0.008 minimum price per dose for the WM Hospital job, which would not reduce its income.

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