Williams Ltd manufactures iron gates to individual customers’ specifications. The company use the tender process to obtain work, where the company responds to an invitation to submit a competitive bid. Over the last few months, Williams Ltd. has been very quiet, and the managing director, Jack Jones, is concerned that the business will fail if it does not improve its success rate with tenders. The company has two production departments, Bending and Welding, and the production requirements for individual jobs can differ significantly. Some jobs require extensive bending with little welding; others require little bending with a lot of welding.

The following table describes the results of the five bids that the company submitted last month. The numbers in brackets after losses indicate where the company ranked in the bid process:

The pattern of resource usage implied in the above table has persisted for several months. The company uses a pre-determined plant-wide overhead rate based on practical capacity, which is measured in direct labour hours. The budgeted overhead for the year for the Bending Department is $54,000 (including $18,000 fixed and $36,000 variable), and for the Welding Department it is $144,000 (including $36,000 fixed and $108,000 variable). Each department has a monthly practical capacity of 3 000 direct labour hours.

Needed:

• Individually read the above case scenario and identify the current overhead allocation issues facing the firm.
• Discuss, identify and analyse a possible cause of the firm’s current situation.
• Your analysis must include the following:
  • How the overhead cost of $4,125 is determined for each job?
  • An explanation of a major cause of the company’s current situation.
  • A statement of the agreed analysis of the problem(s) resulting from the use of the current overhead allocation approach.

The focus must be on identifying the cause and the problems not detailing the facts of the case. You are not to consider solutions to the current situation.

Transcribed Image Text:

Lost (5") Job Direct labour Direct labour Estimated Overhead no. hours in hours in direct labour cost of bid Won/lost Bending 1,200 Welding 300 hours th 1 1,500 $4,125 300 1,200 1,500 $4,125 Won 3 1,400 100 1,500 $4,125 Lost (3") 100 1,400 1,500 $4,125 Won 750 750 1,500 $4,125 Lost (2) 4- Lost (5") Job Direct labour Direct labour Estimated Overhead no. hours in hours in direct labour cost of bid Won/lost Bending 1,200 Welding 300 hours th 1 1,500 $4,125 300 1,200 1,500 $4,125 Won 3 1,400 100 1,500 $4,125 Lost (3") 100 1,400 1,500 $4,125 Won 750 750 1,500 $4,125 Lost (2) 4-

Answer rating: 100% (QA)

Answer a Since plantwide single rate is usedRate is calculated as hereunder Total Annual OH Cost of ... View the full answer