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Your boss has asked you to determine what price the company should charge for the manufacture of one row moldboard plow.
Assume each plow produced requires 4 units of material and 3 hours of direct labor. The average purchase price of the raw material is $10 per unit and the current wage rate is $3.50 per hour. In addition, a variable cost of $2 is associated with each direct labor hour. Finally, the firm employs 300,000 direct labor hours and incurs $400,000 of fixed overhead. Given a markup of 30 percent, compute the price charged for each moldboard plow using the absorption cost method.
One purpose of this assignment is for me to review your understanding of the sales situation and offer suggestions to ensure that you are well-prepared to complete a sales pitch.
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