Price to set on the job, Cost Accounting

Bakeson Bearings Ltd is preparing to submit a bid for a bearings order.  Janet Lake,  CEO of the Manufacturing Division, has asked Jason Docker, the management accountant, to prepare the bid.   Bakeson's policy is to mark up full costs by 10% for all orders.  Lake considers the bid to be very important, stating "we need to be successful with the bid and I expect a very competitive bid when the figures are calculated.  Do what ever is necessary to ensure the bid price is a low as possible".  Lake and other senior members of the management team will receive at 25% bonus if they meet their sales targets.  This order will provide enough new sales to ensure the target set for the bonus scheme is reached.    Docker has gathered the following information about the projected costs for the job:

Direct materials costs                                                         $40,000
Direct labour costs                                                             $10,000

Projected overhead costs:

Based on estimated usage of resources

  • Design and parts administration                                 $4,000
  • Production planning                                                  $5,000
  • Setup costs                                                             $5,500
  • Materials handling                                                    $6,500
  • General costs                                                          $9,000

The setup and design costs are incremental costs of the order.

The firm's usual approach to the allocation of overhead is to apply the overhead costs at a rate of 250% of direct labour as time spent on a job is a good surrogate for measuring the complexity of the work involved.

Required:

Part A:

Write a memo to Janet Lake setting out the cost calculations you believe are appropriate. Justify your approach to costing the job and provide a recommendation on the price to set on the job.  You may present alternative costing approaches if you think these are relevant to your recommendations and discussion.

Remember a memo should be relatively brief and we would not expect your discussion and recommendations to exceed three pages excluding your calculations.

NB: even though referencing is not usual in a memo as this is an academic piece of work please provide full reference details of any ideas and material taken from the literature.

Part B:  

In a separate memo, to Jason Docker, evaluate whether Lake's suggestion to make the costs as low as possible is ethical and discuss what steps he should or could take in the circumstances.

Posted Date: 2/22/2013 2:56:23 AM | Location : United States







Related Discussions:- Price to set on the job, Assignment Help, Ask Question on Price to set on the job, Get Answer, Expert's Help, Price to set on the job Discussions

Write discussion on Price to set on the job
Your posts are moderated
Related Questions
full explanation on cost concept and classification


Distinction between Absorption and Marginal Costing These are two approaches of arriving at the cost of production or total profit for a specified period. The major difference


Direct Labour Budget It represents the forecasts of indirect and direct labour requirements to meet the demands of the company throughout the budget period. Therefore the budg

Outdoors R Us owns several membership-based campground resorts throughout the Southwest. The company sells campground sites to new members, usually during a get-acquainted visit an

Direct material yield variance (MYV) :   It has been described by the ICMA, London, as 'the variation between the standard yield of the actual material input and the actual yi

METHODS OF COSTING : 1. Job costing :  Job costing is the essential costing technique appropriate to those industries somewhere the work consist of separate contracts, or batch

Vince's Pizza delivers pizzas to dormitories and apartments near a major state university. The company's annual fixed costs are $48,000. The sales price averages $9, and it costs t

Alternative to Total Overhead Variances There is an easier approach to overhead variances.  In this approach, the overheads are NOT sub-divided into their fixed and variable e