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Calculate the minimum price per dose

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Reference no: EM132680142

Online Pharmaceuticals is a wholesaler that specialises in packaging bulk drugs, in standard dosages, for local hospitals. The company has been in business for several years and has been profitable since its second year of operation. Shari Blackwood, the assistant accountant, installed a standard costing system after joining the company three years ago.

  • Auckland Starship Hospital has asked Online Pharmaceuticals 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 than 15 percent. Auckland Starship 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. Auckland Starship has indicated that any bid more than $0.03 per dose will be rejected. Blackwood has accumulated the following information prior to the preparation of the bid:

Direct Labour                         $24 per direct labour hour (DLH)
Variable overhead                      $12 per DLH
Fixed overhead                          $20 per DLH
Incremental administrative costs  $2000 for the order
Production rate                         2000 doses per DLH

Problem 1: Calculate the minimum price per dose that Online Pharmaceuticals could bid for the Auckland Starship job without reducing H's profit.

Reference no: EM132680142

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