Cool Air Inc., manufactures single room sized air conditioners. The cost accounting system estimates manufacturing costs to be $ 240.00 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 20 % markup to full costs. A medium sized motel chain is currently expanding and has decided to create more rooms and air condition all of its rooms, which are currently not air conditioned. Cool Air Inc. is invited to submit a bid to the motel chain. What per unit price will Cool Air Inc. most likely bid for this special order of 200 units? Assume that the price is being fixed for a longminusterm commitment.

Question

Bright

Business

15 June, 21:38

Cool Air Inc., manufactures single room sized air conditioners. The cost accounting system estimates manufacturing costs to be $ 240.00 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 20 % markup to full costs. A medium sized motel chain is currently expanding and has decided to create more rooms and air condition all of its rooms, which are currently not air conditioned. Cool Air Inc. is invited to submit a bid to the motel chain. What per unit price will Cool Air Inc. most likely bid for this special order of 200 units? Assume that the price is being fixed for a longminusterm commitment.

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Answers (1)

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Jane Bentley · Answer 1

Selling price = $172.8

Explanation:

Giving the following information:

Manufacturing costs to be $ 240.00 per air conditioner

Consisting of 60 % variable costs and 40 % fixed costs.

Selling price = 20 % markup to full costs.

Because it is a special offer and there is unused capacity, we will not take into account the fixed costs:

Unitary cost = 240*0.6 = $144

Selling price = 144*1.2 = $172.8