Question

Question 3 (20 Marks) Anchor Homes Ltd manufactures modular homes. The company has two main products that it sells commercially: a 1,000 square foot, one-bedroom model and a 1,500 square foot, two- bedroom model. The company recently began providing emergency housing (huts) to Emergency Management Australia (EMA). The emergency housing is similar to the 1,000 square foot model. EMA has requested Anchor Homes Ltd to create a bid for 150 emergency huts to be sent for flood victims in the east. Your boss has asked that you prepare this bid. In preparing the bid, you find a recent invoice to EMA for 200 huts provided after tropical cyclone Debbie. You also have a standard cost sheet for the 1,000 square foot model sold commercially. Both are provided as follows: Standard cost sheet: 1,000 sq. ft. one-bedroom model Direct materials Direct manufacturing labour (30 hours) Manufacturing overhead* ($3 per direct labour dollar) Total cost Retail markup on total cost Retail price $8,000 600 1,800 $10,400 20% $12,480 *Overhead cost pool includes inspection labour ($15 per hour), setup labour ($12 per hour), and other indirect costs associated with production.

Answer 1

Requirement1 Only the retail markup shall be changed. Instead government mark up at 15% should be used. Then 150 huts cost shall be standardized given the total cost. Total cost as per standard cost sheet per hut Total cost for 150 huts (10,400 * 150) Add: Markup as per government contract at 15% Total bid as per standard cost sheet 10,400 1,560,000 234,000 $ 1,794,000 Requirement 2 The invoice is given for 200 huts. To prepare 150 huts, proportionate cost shall be used as Total cost as per invoice for 200 huts Total cost for 150 huts (2,393,600 * 150/200) Add: Markup as per government contract at 15% Total bid as per invoice $ 2,393,600 1,795,200 2,69,280 $ 2,064,480

Requirement 3 The primary difference is different costs were taken to compute standard cost sheet and invoice raised to FEMA. Hence, both the bid prices differ. Requirement 4 Invoice based bid shall be provided to manager since it is recently invoiced to FEMA. This comes in line with assumption that if they accepted the bid price at recent time, they will also accept the same at current. The manager can then maintain consistency in charging the customer.
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