A contractor agrees to a unit price contract to produce Product A for $50 per unit, Product B for $150 per unit, and Product C for $375 per unit. The contractor is also to add 30% for overhead and profit. How much should the contractor be paid for producing 27 units of Product A, 56 units of Product B, and 78 units of Product C?

Rationale

More than $50,000.

To determine the total payment the contractor should receive, we first calculate the gross cost for each product and then add 30% for overhead and profit. The total gross cost for the products exceeds $50,000, confirming that the contractor should be paid more than this amount.

A (Less than $40,000.) YOUR ANSWER

This option is incorrect because the calculations for the total gross cost of products produced yield a figure significantly higher than $40,000. Given the unit prices and quantities involved, the subtotal alone would already surpass this threshold before adding any overhead or profit.

B (Between $40,000 and $45,000.) YOUR ANSWER

This choice is also incorrect. The calculated total gross cost for the products produced, even before the addition of overhead and profit, would exceed $45,000. Once the 30% overhead and profit is applied, the total would be well above this range.

C (Between $45,000 and $50,000.) YOUR ANSWER

While this option seems closer, it remains incorrect as well. The calculations show that the gross cost, combined with the overhead and profit, results in a total that exceeds $50,000. Hence, it cannot fall within this range.

D (More than $50,000.) CORRECT

This is the correct choice because when we calculate the total payment as follows:
- Product A: 27 units x $50 = $1,350
- Product B: 56 units x $150 = $8,400
- Product C: 78 units x $375 = $29,250
Total gross cost = $1,350 + $8,400 + $29,250 = $39,000.
Adding 30% overhead and profit: $39,000 x 1.30 = $50,700. Thus, the total exceeds $50,000.

Conclusion

The contractor's payment for producing the specified quantities of products, inclusive of overhead and profit, results in a total exceeding $50,000. With the calculations confirming this outcome, choice D is validated as the only correct answer among the given options.

More than $50,000.

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