Question:
How fixed cost allocation affects a pricing decision
Foote Manufacturing Co. expects to make 30,000 chairs during 2008. The company made 4,000 chairs in January. Materials and labor costs for January were $16,000 and $24,000, respectively. Foote produced 2,000 chairs in February. Materials and labor costs for February were $8,000 and $12,000, respectively. The company paid the $240,000 annual rental fee on its manufacturing facility on January 1, 2008. Ignore other manufacturing overhead costs.
Required
Assuming that Foote desires to sell its chairs for cost plus 45 percent of cost, what price should be charged for the chairs produced in January and February?