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Answer (C) is correct . The company is permitted to bid 25% above full cost (including fixed overhead). Given a learning curve of 80% and a cumulative average unit labor cost for 40 units of $7,680 ($307,200 ÷ 40), the additional labor costs for the next 40 units can be determined. Cumulative average unit labor cost for 80 units is estimated to be $6,144 ($7,680 × 80%). Estimated total labor cost for 80 units is $491,520 (80 units × $6,144). Thus, the incremental labor cost of the last 40 units is expected to be $184,320 ($491,520 – $307,200). Variable overhead is $1?per direct labor dollar, or $184,320. Adding $240,000 for materials and $100,000 for fixed overhead results in a full cost of $708,640 ($184,320 DL + $184,320 VOH + $240,000 DM + $100,000 FOH). Consequently, the bid price should be $885,800 ($708,640 full cost × 125%).

Answer (A) is incorrect because The amount of $760,800 equals 125% times $608,640, which is full cost without including $100,000 fixed overhead.
Answer (B) is incorrect because The amount of $608,640 is full cost without including $100,000 fixed overhead.
Answer (D) is incorrect because The amount of $708,640 equals full cost. The maximum bid price equals full cost times 125%.