Mars Company has four categories of overhead: purchasing and receiving materials, machine operating costs, materials handling, and shipping. The costs expected for these categories for the coming year are as follows:

The plant currently applies overhead using machine hours and expected annual capacity. Expected capacity is 300,000 machine hours. Pragya Jahangir, the financial controller, has been asked to submit a bid on job #287, on which she has assembled the following data:

Pragya has been told that Arrow Company, a major competitor, is using activity-based costing and will bid on job #287 with a price of $6.75 per unit. Before submitting her bid, Pragya wants to assess the effects of this alternative costing approach. She estimates that 850,000 units will be produced next year, 3,000 purchases and receipts will be made, 400,000 moves will be performed plant-wide, and the delivery of finished goods will require 280,000 kilometres. The bid price policy is full manufacturing cost plus 25%.
Instructions
(a) Calculate the bid price per unit of job #287 using machine hours to assign overhead.
(b) Using an activity-based approach, determine whether Mars or Arrow will produce the most competitive bid and obtain the contract. Show all your calculations.

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Purchasing and receiving materials Machine operating costs Materials handling Shipping Total 300,000 900,000 160,000 140,000 $1,500,000 Direct materials per unit Direct labour per unit Applied overhead Number of units produced Number of purchases and receipts Number of machine hours Number of material moves Number of kilometres to ship to the customer $1.35 $1.85 6,000 3,000 300 2,300