National Testing Systems administers standardized tests like the SAT and the GMAT The firm bids on various jobs (e g , state contracts) using a simple formula Based on the estimated number of tests, National assesses the number of labor hours needed to complete the job National then adds overhead, allocated based on labor hours, to arrive at its total cost of completing the job Over the past two years, Nationals new CEO has been aggressively pushing other value added services such as longitudinal tracking of test scores and conversion of paper tests to electronic tests National also bid on these jobs based on the number of labor hours needed While National won almost every bid for these new services, the firms profit has been steadily decreasing over this same time period The following data are available for the past three years of operations (For simplicity, we group jobs into regular and new jobs, corresponding to the traditional and new businesses) You know that the overhead cost structure for the regular jobs has remained stable over this time National has a long history with these kinds of jobs, and knows how to manage their costs Virtually all of the increase in fixed overhead is attributable to the new jobs that the CEO favors Required a Using the above data to support your argument, comment on why National appears to be less competitive on regular jobs (notice the decline in the number of hours devoted to regular jobs) but is winning virtually all bids on new jobs b How might National change its costing system to more accurately reflect the relative amounts of capacity resources consumed by the two kinds ofjobs Year 1 Year 2 Year 3 Fixed overhead Labor hours (regular jobs) Labor hours (new jobs) $20 5 llon $22 0 mion $25 million 180,000 35,000 205,000 190,000 15,000

Question: National Testing Systems administers standardized tests like the SAT and the GMAT. The firm bids on various jobs (e.g., state contracts) using a simple formula.

National Testing Systems administers standardized tests like the SAT and the GMAT. The firm bids on various jobs (e.g., state contracts) using a simple formula. Based on the estimated number of tests, National assesses the number of labor hours needed to complete the job. National then adds overhead, allocated based on labor hours, to arrive at its total cost of completing the job.
Over the past two years, National€™s new CEO has been aggressively pushing other €œvalue-added€ services such as longitudinal tracking of test scores and conversion of paper tests to electronic tests. National also bid on these jobs based on the number of labor hours needed. While National won almost every bid for these new services, the firm€™s profit has been steadily decreasing over this same time period.
The following data are available for the past three years of operations (For simplicity, we group jobs into €œregular€ and €œnew€ jobs, corresponding to the traditional and new businesses):

You know that the overhead cost structure for the regular jobs has remained stable over this time. National has a long history with these kinds of jobs, and knows how to manage their costs. Virtually all of the increase in fixed overhead is attributable to the €œnew€ jobs that the CEO favors.

Required:
a. Using the above data to support your argument, comment on why National appears to be less competitive on regular jobs (notice the decline in the number of hours devoted to regular jobs) but is winning €œvirtually all bids€ on new jobs?
b. How might National change its costing system to more accurately reflect the relative amounts of capacity resources consumed by the two kinds ofjobs?

Year 1 Year 2 Year 3 Fixed overhead Labor hours (regular jobs) Labor hours (new jobs) $20.5 llon $22.0 mion $25 million 180,000 35,000 205,000 190,000 15,000

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