Shreshtha Enterprises manufactures Caravans. The company has twomain Caravans it sells commercially: a Deluxe 50-seater Caravan anda Standard 24-seater Caravan. The Company has also startedmanufacturing an Economy 10-seater Caravan to Khadka Traders,recently. The Economy Caravan is similar to the Deluxe Caravan.
Khadka has requested Shrestha to create a bid for 150 EconomyCaravans. You have been requested by your manager to prepare thisbid. In preparing the bid, you find the following twodocuments:
A standard cost sheet for the Deluxe Caravans soldcommercially.
A recent invoice to Khadka for 200 Economy Caravans
The details fo these documents are given below.
Standard Cost Sheet: Deluxe Caravans
Direct materials
$9500
Direct manufacturing labour
32 hours
704
Manufacturing overhead*
$3.50 per direct labour dollar
2,464
Total cost
$12,668
Retail markup on total cost
25%
Retail price
$15,835
Invoice
Date: November, 1, 2015
Bill to: Khadka
For: 200 Economy Caravans
Direct materials
$2.090,000
Direct manufacturing labour**
164,400
Manufacturing overhead
575,400
Total cost
2,829,800
Markup on total cost
20%
Total due
$3,395,760
A.Calculate the total bid if you base your calculations on thestandard cost sheet assuming a cost plus 20% mark-up.
B.Calculate the total if you base your calculations on theNovember 1, 2015 invoice assuming a cost plus 20% mark-up.
C.What are the main discrepancies between the bids youcalculated in requirements 1 and 2?
D.What bid should you present to your manager? What principlesfrom the IMA “Standards of Ethical Conduct for Practitioners ofManagement Accounting and Financial Management,” as described inChapter 1, should guide your decision? As a manager what would youdo?
*Overhead cost pool includes inspection labour ($15 perhour), setup labour ($12 per hour), and other indirect costsassociated with production.
** Direct manufacturing labour includes 30 productionhours per unit, 4 inspection hours per unit, and 6 setup hours perunit.
End
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