Reference no: EM132583027

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 make a bid for 150 emergency huts to be sent for flood victims in the east. Your boss has asked that you produce 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                                                           $8,000

Direct manufacturing labour (30 hours)                               600

Manufacturing overhead* ($3 per direct labour dollar)           1,800

Total cost                                                                  $10,400

Retail markup on total cost                                                20%

Retail price                                                                  $12,480

• Overhead cost pool includes inspection labour ($15 per hour), setup labour ($12 per hour), and other indirect costs

INVOICE:

DATE: September 15, 2017 BILL TO: EMA

FOR: 200 Emergency Huts

SHIP TO: Townsville, Queensland

Direct materials                                              $1,840,000

Direct manufacturing labour                                    138,400

Manufacturing overhead                                         415,200

Total cost                                                         2,393,600

Government contract markup on total cost                 15%

Total due                                                         $2,752,640

• Direct manufacturing labour includes 28 production hours per unit, 4 inspection hours per unit, and 6 setup hours per unit

Required:

Question 1. Calculate the total bid if you base your calculations on the standard cost sheet assuming a cost plus 15% government contract.

Question 2. Calculate the total bid if you base your calculations on the September 15, 2017, invoice assuming a cost plus 15% government contract.

Question 3. What are the main discrepancies between the bids you calculated in #1 and #2?

Question 4. What bid should you present to your boss? What principles from the CIMA's Code of Ethics should guide your decision?