Colwell Recycling recycles newsprint, cardboard, and so forth, into recycled packaging materials. For the coming year, Colwell Recycling estimates total manufacturing overhead to be $ 348,950. The company’s managers are not sure if direct labor hours (estimated to be 9,970) or machine hours (estimated to be 13,958 hours) is the best allocation base to use for allocating manufacturing overhead. Colwell bids for jobs using a 30% markup over total manufacturing cost.
After the new fiscal year began, Leftwich Paper Supply asked Colwell Recycling to bid for a job that will take 2,000 machine hours and 1,500 direct labor hours to produce. The direct labor cost for this job will be $ 13 per hour, and the direct materials will total $ 25,400.
1. Compute the total job cost and bid price if Colwell Recycling decided to use direct labor hours as the manufacturing overhead allocation base for the year.
2. Compute the total job cost and bid price if Colwell Recycling decided to use machine hours as the manufacturing overhead allocation base for the year.
3. In addition to the bid from Colwell Recycling, Leftwich Paper Supply received a bid of $ 125,500 for this job from Drund Recycling. What are the ramifications for Colwell Recycling?