Using the Following Information:
Drill Quest, Inc $Q = 1,200 - 0.05 P$

question 53

Multiple Choice

Using the following information:
Drill Quest, Inc. manufactures drill bits for the oil industry. Drill Quest uses cost-plus pricing to set the price of its bits. Currently Drill Quest applies a 50 percent markup on average total cost. Average variable cost of producing bits is constant and equal to $6,000 per bit. Total fixed cost at Drill Quest is $550,000. DrillQuest currently produces 690 bits. Statistical estimation of demand for Drill Quest brand bits produces the following linear demand equation (where Q is the number of bits demanded and P is the price of bits) :
$Q = 1,200 - 0.05 P$
-Use the MR = SMC approach to finding the profit-maximizing point on the demand for Drill Quest's bits. The profit-maximizing price to charge is $___________ per bit.

• A) $15,000
• B) $12,500
• C) $10,378
• D) $10,245
• E) $10,000

---

Definitions:

Work In Process

Inventory that includes goods partially completed; represents raw materials, labor, and overhead costs incurred in the manufacturing process.

Production Departments

Divisions within a manufacturing company responsible for different stages of the production process.

Direct Materials

Raw materials that can be directly traced to the production of a specific good or service in manufacturing or production.

Factory Overhead

Factory overhead refers to the indirect manufacturing costs not directly tied to the production of goods, such as utilities or management salaries.