Cool Systems manufactures single-room-sized air conditioners. The cost accounting system estimates manufacturing costs to be $190 per air conditioner, consisting of 75% variable costs and 25% fixed costs. The company has surplus capacity available. It is Cool Systems' policy to add a 30% markup to full costs. A medium-sized motel chain is currently expanding and has decided to create more rooms and air-condition all of its rooms, which are currently not air-conditioned. Cool Systems is invited to submit a bid to the motel chain.

What per unit price will Cool Systems most likely bid for this special order of 50 units?

Cool Systems is expected to bid $185.25 per unit for the special order of 50 air conditioners, calculated using variable cost and added markup per company policy.

Cool Systems is analyzing a bid for a special order of 50 air conditioners. Given the manufacturing cost is $190 per unit with a mix of fixed and variable costs, and considering the surplus capacity, it is likely the bid will only include the variable costs plus the markup when calculating the special order price. The variable cost is 75% of the full cost, so the variable cost per air conditioner is $142.50 (75% of $190). With a policy to add a 30% markup to full costs, the markup on the variable cost would be $42.75 (30% of $142.50). Thus, the likely bid price per unit for this special order would be $185.25 ($142.50 variable cost + $42.75 markup).