Reference no: EM132649417

Williams Ltd manufactures iron gates to individual customers' specifications. The company use the tender process to obtain work, where the company responds to an invitation to submit a competitive bid. Over the last few months, Williams Ltd. has been very quiet, and the managing director, Jack Jones, is concerned that the business will fail if it does not improve its success rate with tenders. The company has two production departments, Bending and Welding, and the production requirements for individual jobs can differ significantly. Some jobs require extensive bending with little welding; others require little bending with a lot of welding.

The following table describes the results of the five bids that the company submitted last month. The numbers in brackets after losses indicate where the company ranked in the bid process:

1 Job      Direct labour          Direct labour Estimated        Overhead
no.          hours                             in hours                              in direct labour cost of bid Won/lost

                         Bending                                        Welding hours
1                1,200                        300               1,500                               $4,125 Lost
2                    300                     1,200                1,500                              $4,125 Won
3                  1,400                      100                  1,500                              $4,125 Lost
4                    100                      1,400                   1,500                            $4,125 Won
5                   750                          750                    1,500                     $4,125 Lost

The pattern of resource usage implied in the above table has persisted for several months. The company uses a pre-determined plant-wide overhead rate based on practical capacity, which is measured in direct labour hours. The budgeted overhead for the year for the Bending Department is $54,000 (including $18,000 fixed and $36,000 variable), and for the Welding Department it is $144,000 (including $36,000 fixed and $108,000 variable). Each department has a monthly practical capacity of 3 000 direct labour hours.

Question (i) Discuss an alternative bidding scheme that overcomes the current overhead allocation situation facing the firm, by proposing an alternative method of allocating manufacturing overheads. Support your analysis with calculations by showing the overheads cost bid for each job applying your alternative method.

Question (ii) Explain how this alternative bidding scheme may improve its success rate with tenders. Your explanation should take into account the qualitative factors