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Competitive Bidding

The document provides cost and pricing information for a company's products and projects. It shows the variable and fixed costs to manufacture a new depth finder product, including a target cost of $340. It also provides estimated costs of $67,500 to build a new marina, with direct labor of $18,000, materials of $30,000 and variable and fixed overhead costs applied.

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shreyansh120
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34 views10 pages

Competitive Bidding

The document provides cost and pricing information for a company's products and projects. It shows the variable and fixed costs to manufacture a new depth finder product, including a target cost of $340. It also provides estimated costs of $67,500 to build a new marina, with direct labor of $18,000, materials of $30,000 and variable and fixed overhead costs applied.

Uploaded by

shreyansh120
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Price and Cost Data

Variable manufacturing cost


Applied fixed manufacturing cost
Variable selling and administrative cost
Allocated fixed selling and administrative cost
Total cost

(in $)
400
250
50
100
800

(Amt in $)
Variable costs:
Manufacturing
Selling and administrative
Total varaiable costs
Fixed costs:
Manufacturing
Selling and administrative
Total fixed costs
Total costs
Note:
192,000 = 400*480
24,000 = 50*480
120,000 = 480*250
48,000 = 480*100

(Amt in $)

192,000
24,000
216,000
120,000
48,000
168,000
384,000

Target costing

The company first uses market research to determine the price at which a new product can be sold
sales price, management computes the cost for which the product must be manufactured in order
with an acceptable profit margin. Finally, engineers and cost analysts work together to design a pro
manufactured for the allowable cost. This process, called target costing, is used widely by compani
development stages of new products. A new product's target cost is the projected long-run cost tha
to enter and remain in the market for the product and compete successfully with the firm's compet

w product can be sold. Given the likely


anufactured in order to provide the firm
gether to design a product that can be
ed widely by companies in the
cted long-run cost that will enable a firm
with the firm's competitors.

To illustrate, Sydney Sailing Supplies' Marine Instruments Division, located in Perth, Australia, wants to
cost of $340 must be met in order to successfully compete in this market. Exhibit 15-6 shows how ABC
$337, just below the target cost. The company's design engineers were able to focus on key activities
reduce the projected costs.
Exhibit-15-6
A. Activity -Based Costing System
Activity Cost Pool
Purchasing
Material Handling
Inspection

Cost Driver
Number of parts
Dollar value of parts
Inspection hours

B. Cost Projections for a New Product: Depth Finder

Direct material
Direct labor
Purchasing:
$1 per part (45 parts)
$1 per part (32 parts)
Material Handling:
$.20 per direct-material dollar ($200)
$.20 per direct-material dollar ($190)
Inspection:
$28 per inspection hour (.5 hour)
$28 per inspection hour (.25 hour)
Total projected cost
Target cost

Original
Cost Projection (in $)
200
100
45

40

14
399

ion, located in Perth, Australia, wants to introduce a new depth finder. Target costing studies indicate that a targ
his market. Exhibit 15-6 shows how ABC was used to bring the depth finder's initial cost estimate of $399 down
ers were able to focus on key activities in the production process, such as material handling and inspection, and

Pool Rate
$1 per part
$.20 per direct material dollar
$28 per inspection hour

Improved
Cost Projection (in $)
190
70

32

38

7
337
$340

studies indicate that a target


cost estimate of $399 down to
handling and inspection, and

Richard Moby was approached recently by the city of Sydney about building a new marina for mod
submit a bid on the job. The Marine Services Division specializes in marina maintenance and const
companies were equally capable of building the marina to the city's specifications, Moby assumed
the controller and chief engineer of the Marine Services Division, and the following data were comp

Estimated direct-labor requirements, 1,500 hours at $ 12.00 per hour


Estimated direct-material requirements
Estimated variable overhead (allocated on the basis of direct labor),1,500
direct-labor hours at $5.00 per hour
Total estimated variable costs
Estimated fixed overhead (allocated on the basis of direct labor), 1,500
direct-labor hours at $8.00 per hour
Estimated total cost

t building a new marina for moderate-sized sailing vessels. Moby decided that his company's Marine Services
marina maintenance and construction. The city announced that three other firms also would be submitting
s specifications, Moby assumed that the bid price would be the deciding factor in selecting the contractor.Mo
nd the following data were compiled.
(Amt in $)
18,000
30,000
7,500
55,500
12,000
67,500

mpany's Marine Services Division should


o would be submitting bids. Since all four
ecting the contractor.Moby consulted with

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