Job costing, contracting, ethics Jack Halpern is the owner and CEO of Aerospace Comfort, a firm specializing in the manufacture of seats for airplanes. He has just received a copy of a letter written to the General Audit Section of the U.S. Navy. He believes it is from an ex-employee of Aerospace. 

Dear Sir,

Aerospace Comfort manufactured 100 X7 seats for the Navy in 2009. The following may be of interest.

1. Direct material costs billed for the 100 X7 seats were $25,000.

2. Direct manufacturing labor costs billed for 100 X7 seats were $6,000. These costs include 16 hours of setup labor at $25 per hour, an amount included in the manufacturing overhead cost pool as well. The 56,000 also includes 12 hours of design time at $50 an hour. Design time was explicitly identified as a cost the Navy would not reimburse.

3. Manufacturing overhead costs billed for 100 X7 seats were $9,000 (150% of direct manufacturing labor costs). This amount includes the 16 hours of setup labor at $25 per hour that is incorrectly included as part of direct manufacturing labor costs.

You may also want to know that over 40% of the direct materials is purchased from Frontier Tech, a Company that is 51% owned by Jack Halpern‘s brother. For obvious reasons, this letter will not be signed. The Wall Street Journal, Jack Halpern, CEO of Aerospace Comfort

Aerospace Comfort’s contract states that the Navy reimburses Aerospace at 130% of total manufacturing costs. Assume that the facts in the letter are correct as you answer the following questions.

1. What is the cost amount per X7 seat that Aerospace Comfort billed the Navy? Assume that the actual direct material costs were $25,000.

2. What is the amount per X7 seat that Aerospace Comfort should have billed the Navy? Assume that the actual direct material costs were $25,000.

3. What should the Navy do to tighten its procurement procedures to reduce the likelihood of such situations recurring in the future?