Developed using regression analysis of monthly prior

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developed using regression analysis of monthly prior-period costs for each machine and process. These costs, labeled as conversion costs, included all labour, job setup, and mold development costs as well as fixed and variable processing overhead costs. The job setup and mold development costs were fairly constant from job to job. The coefficients from the regression analysis were used as the rates for variable-cost items and the intercept values were divided by full capacity processing hours to determine the rates for fixed-cost items.
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Frank has the idea that there is something wrong with JPM ’s current bidding system. Accordingly, he decided to test alternative approaches in preparing their next bid for a fairly small contract for instrument panel components requested by Levine Controls Inc. He started with the usual bidding method based on the cost estimate prepared by the accounting department (Exhibit 2-1), and made a mental note that he would normally have submitted a bid of $145,000. He then made his best estimates of the probabilities of winning the contract at various bids (Exhibit 2-2) based on the past experience of the last two years and the profile of the customer. REQUIRED: Using the case approach discussed in class, determine what Frank Morris should do.
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EXHIBIT 2-1 Cost Estimates for Contract to Supply 10,000 Automobile Instrument Panel Components to Levine Controls Inc Standard Standard Cost Hours Rate/Hour per Unit Material $4.463 Conversion costs: Labour: Variable 300 $21.97 $0.659 Fixed 300 25.17 $0.755 $1.414 Processing on machine: Variable 500 $51.50 $2.575 Fixed 500 35.50 $1.775 $4.350 Finishing: Variable 100 23.50 $0.235 Fixed 100 28.50 $0.285 $0.520 Total manufacturing costs before rejects $10.747 Rejects (1) 1.075 Total manufacturing costs $11.822 Selling and administration (2) 0.337 Total cost $12.159 Markup (20%) 2.432 Standard price per unit $14.591 Standard bid for 10,000 units (3) $145,910 Notes: 1) A 10% standard allowance was added for defective units which would be rejected during final inspection. This reflected a normal spoilage rate.
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  • Winter '18
  • JPM

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