Reference no: EM132758182

Question - North American Pharmaceuticals, Inc., specializes in packaging bulk drugs in standard dosages for local hospitals. The company has been in business for seven years and has been profitable since its second year of operation. Don Greenway, Assistant Controller, installed a standard costing system after joining the company three years ago.

Wyant Memorial Hospital has asked North American Pharmaceuticals to bid on the packaging of two million doses of medication at total cost plus a return on total cost of no more than 25 percent. Wyant defines total 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. Wyant has indicated that any bid over $0.04 per dose will be rejected.

Greenway has accumulated the following information prior to the preparation of the bid.

Direct labor $28.00 per direct-labor hour (DLH)

Variable overhead $24.00 per DLH

Fixed overhead $32.00 per DLH

Incremental administrative costs $3,200 for the order

Production rate 3,200 doses per DLH

Required -

1. Calculate the minimum price per dose that North American Pharmaceuticals could bid for the Wyant Memorial Hospital job that would not reduce the pharmaceutical company's income.

2. Calculate the bid price per dose using total cost and the maximum allowable return specified by Wyant Memorial Hospital.