Problem
Cost Plus Pricing You work as a cost accountant at GP Engineers and Contractors (GP), which recently won a 10-year government contract for provision of electricity to the country's largest airport during power outages. For the purpose, GP is required to setup a small diesel-run power plant and operate and maintain it over the contract term. According to the contract, GP shall be reimbursed every month for the cost incurred per unit (kilowatt hour) of electricity consumed from GP system plus a 20% profit on cost.
During the first month, GP provided 98,000 units from its power plant to the airport. The plant consumed 30,000 litres of diesel during the month, which cost $1 per liter. Employees dedicated to the power plant earn $30,000 per month. Head office expenses allocated to the power plant on account of management fee for the month amount to $20,000. The plant is depreciated at the rate of $15,000 per month over the 10-year contract period.
You are required to calculate the amount at which you will invoice the government for the first month?