Question - Northwoods manufactures rustic furniture. The cost accounting system estimates manufacturing costs to be $90 per table, consisting of 80% variable costs and 20% fixed costs. The company has surplus capacity available. It is Northwoods' policy to add a 50% markup to full costs.
- Northwoods is invited to bid on a one-time-only special order to supply 100 rustic tables. What is the lowest price Northwoods should bid on this special order?
- A large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic style. Northwoods Incorporated is invited to submit a bid to the hotel chain. What is the lowest price per unit Northwoods should bid on this long-term order?
- Briefly explain the concept of relevant cost to the management of Northwoods.