E3-23A Compare bid prices under two different allocation bases

(Learning Objectives 3 & 4)

Rosa Recycling recycles newsprint, cardboard, and so forth, into recycled packaging materi-

als. For the coming year, Rosa estimates total manufacturing overhead to be $369,260. The

company's managers are not sure if direct labor hours (estimated to be 9,980) or machine

hours (estimated to be 18,463 hours) is the best allocation base to use for allocating manu-

facturing overhead. Rosa bids for jobs using a 31% markup over total manufacturing cost.

After the new fiscal year began, Potter Paper Supply asked Rosa Recycling to bid for

a job that will take 1,980 machine hours and 1,700 direct labor hours to produce. The di-

rect labor cost for this job will be $12 per hour, and the direct materials will total $25,300.

Requirements

1. Compute the total job cost and bid price if Rosa 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 Rosa Recycling decided to use machine

hours as the manufacturing overhead allocation base for the year.

3. In addition to the bid from Rosa Recycling, Potter Paper Supply received a bid of $125,000

for this job from Mauzy Recycling. What are the ramifications for Rosa Recycling?