Chapter 19, Problem 3BTN

Assume that your company sells portable housing to both general contractors and the government. It sells jobs to contractors on a bid basis. A contractor asks for three bids from different manufacturers. The combination of low bid and high quality wins the job. However, jobs sold to the government are bid on a cost-plus basis. This means price is determined by adding all costs plus a profit based on cost at a specified percent such as 10%. You observe that the amount of overhead applied to government jobs is higher than that applied to contract jobs. These allocations concern you.

Required

Write a half-page memo to your company's chief financial officer outlining your concerns with overhead allocation.

Point Students could compare responses and discuss differences in concerns with allocating overhead.