Scribd
Upload
131 views2 pages

2009-10-29 201418 Marcus

Marcus Fibers manufactures synthetic fibers and seeks to bid on a contract for 800,000 blankets. The cost accountant gathered cost information including $6/blanket for raw materials, $7/hour for direct labor, and various variable and fixed support costs. [a] Calculates the minimum bid price of $24/blanket. [b] Calculates the full cost bid price under the criteria of $29.90/blanket, which exceeds the maximum allowed bid of $25/blanket. [c] If the full cost exceeds $25, Marcus should consider excess capacity, contribution to fixed costs per blanket, and effects on pricing with current customers before deciding whether to bid at $25.

Uploaded by

Shailene David
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
131 views2 pages

2009-10-29 201418 Marcus

Marcus Fibers manufactures synthetic fibers and seeks to bid on a contract for 800,000 blankets. The cost accountant gathered cost information including $6/blanket for raw materials, $7/hour for direct labor, and various variable and fixed support costs. [a] Calculates the minimum bid price of $24/blanket. [b] Calculates the full cost bid price under the criteria of $29.90/blanket, which exceeds the maximum allowed bid of $25/blanket. [c] If the full cost exceeds $25, Marcus should consider excess capacity, contribution to fixed costs per blanket, and effects on pricing with current customers before deciding whether to bid at $25.

Uploaded by

Shailene David
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
You are on page 1/ 2

Solutions Guide:

Marcus Fibers, Inc, specializes in the manufactore of synthetic fibers that the company
uses in many products such as blankets, coats, and uniforms for police and firefighters.
Marcus has been in business since 1975 and has been profitable each year since 1983.
The company uses a standard cost system and applies manufacturing support costs on the
basis of direct labor hours. Marcus has recently received a request to bid on the
manufacturing of 800,000 blankets scheduled for delivery to several military bases. The
bid must be stated at full cost per unit plus a return on full cost of no more than 9% after
income taxes. Full cost has been defined as including all variable costs, and reasonable
incremental admininstrative costs associated with the manufacturing that bids in excess
of $25 per blanket are not likely to be considered.
To prepare the bid the 800,000 blankets, Andrea, cost accountant has gathered
information about the costs associated with the production of the blanket.
 
Costs Amount
 
Raw Materials $1.50 per pound of fibres
Direct Labor $7.00 per hour
Direct Machine Costs $10.00 per blanket
Variable Support $3.00 per direct labor hour
Fixed Support $8.00 per direct labor hour
Incremental Admin Costs $2,500 per 1,000 blankets
Special Fee $0.50 per blanket
Material Usage 6 pounds per blanket
Production Rate 4 blankets per direct labor hour
Effective Tax Rate 40%
 
Required:
 
a. Calcualte the minimum price per blanket that Marcus Fibers, Inc, could bid without
reducing the company's net income.
b. Using the full cost criterion and the maximum allowable return specified, calculate the
bid price blanket for Marcus Fibers, Inc.
c. Without prejudice to your answer to (b), assume that the price per blanket to Marcus
Fibers, Inc, calculated using the cost-plus criterion specified, is greater than the
maximum bid of $25 per blanket allowed. Discuss the factors that Marcus Fiber, Inc,
should consider before deciding whether to submit a bid at the maximum acceptable price
of $25 per blanket.

(a) The minimum price per blanket that Marcus Fibers, Inc. could bid
without reducing the company’s net income is $24.00
calculated as follows:

Raw materials (6 lb. × $1.50/lb.) $9.00


Direct labor (0.25 hr. × $7.00/hr.) 1.75
Machine time ($10.00/blanket) 10.00
Variable support (0.25 hr × $3.00/hr.) 0.75
Administrative cost ($2,500  1,000) 2.50
Minimum bid price $24.00

(b) Using the full cost criterion and the maximum allowable return
specified, Marcus Fibers, Inc.’s bid price per blanket would be
$29.90, calculated as follows:

Relevant costs from requirement (a) $24.00


Fixed support (0.25 hr × $8.00/hr.) 2.00
Subtotal 26.00
a
Allowable return (0.15 × $26.00) 3.90
Bid price $29.90
a
9%  (1 – tax rate of 40%)

(b) Factors that Marcus Fibers, Inc. should consider before deciding
whether to submit a bid at the maximum acceptable price of
$25.00 per blanket include the following:

• The company should be sure there is sufficient excess


capacity to fulfill the order and that no additional
investment is necessary in facilities or equipment, which
would increase the capacity-related (fixed) expense.
• If the order is accepted at $25.00 per blanket, there will
be a $1.00 contribution per blanket to fixed costs.
However, the company should consider whether there are
other jobs that would make a greater contribution.
• Acceptance of the order at a low price could cause
problems with current customers who might demand a
similar pricing arrangement.

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy