1) Mighty Mint Co. manufactures mint syrup utilized by gum and candy companies. Newly, the company has had excess capacity due to foreign supplier entering its market. Mighty Mint is presently bidding on the potential order from Quality Candy for= 5,000 cases of syrup. Estimated cost of each case is= $21, as follows:
Direct material $7
Direct labor 5
Overhead 9
Total $21
2) Predetermined overhead rate is= $1.80 per direct labour dollar. This was evaluated by dividing approximate annual overhead ($1,080,000) by approximate annual direct labor ($600,000). $1,080,000 of overhead is composed of $270,000 of variable costs and $810,000 of fixed costs. Largest fixed cost relates to depreciation of plant and equipment.
With regard to overhead, determine the opportunity cost of producing a case of syrup?
Assume Mighty Mint can win Quality Candy business by bidding price of $18 per case (but no higher price will result in a winning bid). Should Mighty Mint bid $18?