Jaycee Manufacturing, which produces electrical components, is contemplating submitting a bid for 30,000 units of item no. 54. The bid's cost will be follows: $ 75,000 120,000 150,000 3,000 5,000 12,000 $365,000 Raw materials Direct labor Manufacturing overhead Additional set-up costs Special device Allocated administrative overhead Total cost The special device will be purchased for this job and once the job is completed, the device will be discarded. Jaycee applies total manufacturing overhead of $5 to each unit (0.5 machine hours at $10 per hour). This figure is based, in part, on budgeted yearly fixed overhead of $1,440,000 and an anticipated volume of 480,000 machine hours (40,000 per month). Jaycee is presently working at 85% of capacity, and the client needs the order in two months. Required: A. Is Jaycee's current operating environment one of excess capacity or no excess capacity? Briefly explain. B. If Jaycee had excess capacity, what would be the lowest cost total that the company should use when figuring its bid for the order? C. Can Jaycee produce this order in the required time frame of two months? Explain. D. Suppose that Jaycee is in marginal financial health. Explain the benefits and problems of approaching the bidding procedure with (1) a low bid or (2) a high bid.
Jaycee Manufacturing, which produces electrical components, is contemplating submitting a bid for 30,000 units of item no. 54. The bid's cost will be follows: $ 75,000 120,000 150,000 3,000 5,000 12,000 $365,000 Raw materials Direct labor Manufacturing overhead Additional set-up costs Special device Allocated administrative overhead Total cost The special device will be purchased for this job and once the job is completed, the device will be discarded. Jaycee applies total manufacturing overhead of $5 to each unit (0.5 machine hours at $10 per hour). This figure is based, in part, on budgeted yearly fixed overhead of $1,440,000 and an anticipated volume of 480,000 machine hours (40,000 per month). Jaycee is presently working at 85% of capacity, and the client needs the order in two months. Required: A. Is Jaycee's current operating environment one of excess capacity or no excess capacity? Briefly explain. B. If Jaycee had excess capacity, what would be the lowest cost total that the company should use when figuring its bid for the order? C. Can Jaycee produce this order in the required time frame of two months? Explain. D. Suppose that Jaycee is in marginal financial health. Explain the benefits and problems of approaching the bidding procedure with (1) a low bid or (2) a high bid.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:**Jaycee Manufacturing: Bid Proposal for 30,000 Units**
Jaycee Manufacturing, a producer of electrical components, is considering submitting a bid for 30,000 units of item no. 54. The projected costs are as follows:
- **Raw materials**: $75,000
- **Direct labor**: $120,000
- **Manufacturing overhead**: $150,000
- **Additional set-up costs**: $3,000
- **Special device**: $5,000
- **Allocated administrative overhead**: $12,000
- **Total cost**: $365,000
**Details:**
- The special device will be purchased for this job and discarded afterwards.
- A total manufacturing overhead of $5 is applied to each unit, based on 0.5 machine hours at $10 per hour. This is derived from a budgeted fixed overhead of $1,440,000 with an anticipated volume of 480,000 machine hours (40,000 per month).
- Jaycee operates at 85% capacity and the client requires the order in two months.
**Questions:**
**A. Capacity Evaluation:**
- Is Jaycee's current environment one of excess capacity or no excess capacity? Explain briefly.
**B. Lowest Cost Bid:**
- If excess capacity exists, what is the lowest cost total Jaycee should use for the bid?
**C. Production Feasibility:**
- Can Jaycee complete the order in two months? Explain.
**D. Financial Health Analysis:**
- With marginal financial health, discuss the implications of low vs. high bid strategies.
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