Cool Air Inc., manufactures single room sized air conditioners. The cost accounting system estimates manufacturing costs to be $230 per air conditioner, consisting of 60% variable costs and 40% fixed costs. The company has surplus capacity available. It is Cool Air Inc.'s policy to add a 30% markup to full costs.
Cool Air Inc., is invited to bid on a one-time-only special order to supply 110 air conditioners. What is the lowest price Cool Air Inc. should bid on this special order?
A) $15,180
B) $25,300
C) $35,420
D) $32,890

Question

Quizplus · Accepted Answer

The lowest price should cover the variable costs since there is surplus capacity. Variable cost per unit is 60% of $230, which is $138. For 110 units, the total variable cost is $138 * 110 = $15,180.