Question

Halifax Pharmacy is a wholesaler that specializes in packaging bulk drugs, in standard dosages, for local hospital. Blaney Children’s Hospital has asked Halifax to bid on the packaging of one million doses of medication at total product cost plus a mark-up on total cost of no more tan 15%. Blaney defines‘total product cost’as including all variable costs of performing the service, a reasonable amount of fixed overhead, and reasonable administrative costs. The hospital will supply all packaging materials and ingredients. Halifax has accumulated the following information prior to the preparation of the bid:

Direct labor	$24 per direct labor hour(DLH)
Variable overhead	$12 per DLH
Fixed overhead	$20 per DLH
Incremental administrative costs	$2,000 for the order
Production rate	2,000 doses per DLH

Calculate the minimum price per dose that Halifax could bid for the Blaney job without reducing Halifax’s profit.

A.$0.030 per dose

B.$0.028 per dose

C.$0.345 per dose

D.$0.023 per dose

E.$0.020 per dose

Answer 1

Calculate the minimum price per dose that Halifax could bid for the Blaney job without reducing Halifax’s profit.

Particulars	Amount ($)
Direct labor	12000 ($24 per direct labor hour(DLH) x 500 DLH)
Variable overhead	6000 ($12 per DLH x 500 DLH)
Fixed overhead	10000 ($20 per DLH x 500 DLH)
Incremental administrative costs	2,000
TOTAL COST (A)	30000
number of Dozes (B)	1000000
Minimum Price of Dozes could be bid without affecting its profit (A/B)	0.03

So, Halifax can quote $0.03 per dozes in the bid without affecting its company's profit

OPTION A. would be correct answer

NOTE : Number of Dozes = 1000000 Dozes

1 Direct labour hour required to produce 2000 Dozes

So, No. of DLH required to produce 1 million Dozes = 1000000 / 2000 Dozes

No. of DLH required to produce 1 million Dozes = 500 DLH

Conclusion : halifax has to bid only that amount which is equal to its Total cost incurred by halifax in this project. So, that its profit would not be affected