Answer the following questions using the information below:
Black Forrest manufactures rustic furniture. The cost accounting system estimates manufacturing costs to be $240 per table, consisting of 60% variable costs and 40% fixed costs. The company has surplus capacity available. It is Black Forrest policy to add a 50% markup to full costs.
-Black Forrest is invited to bid on a one-time-only special order to supply 200 rustic tables. What is the lowest price Black Forrest should bid on this special order?
A)$43,200
B)$14,400
C)$24,000
D)$28,800

Question

Quizplus · Accepted Answer

First, we need to calculate the full cost of one table:
Full Cost = Manufacturing Cost + Markup
Manufacturing Cost = $240 per table
Markup = 50% of manufacturing cost = $120 per table
Full Cost = $240 + $120 = $360 per table

Next, we need to determine the lowest price Black Forrest should bid on the special order of 200 rustic tables:
Total Cost = Number of Tables * Full Cost
Number of Tables = 200 tables
Full Cost = $360 per table
Total Cost = 200 * $360 = $72,000

However, this is the total cost and we need to add a markup to this in order to determine the bid price. Black Forrest policy is to add a 50% markup to full costs, so:

Bid Price = Total Cost + Markup
Total Cost = $72,000
Markup = 50% of total cost = $36,000
Bid Price = $72,000 + $36,000 = $108,000

Therefore, the lowest price Black Forrest should bid on this special order is $108,000, or $540 per rustic table. The correct option is D.

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