Middleton Recycling recycles newsprint, cardboard, etc. into recycled packaging materials. For the coming year, Middleton Recycling estimates total manufacturing overhead to be $360,000. The company’s managers are not sure if direct labour hours (estimated to be 10,000) or machine hours (estimated to be 15,000 hours) is the best allocation base to use for allocating manufacturing overhead. Middleton Recycling bids for jobs using a 30% markup over total manufacturing cost.

After the new fiscal year began, Wisconsin Paper Supply asked Middleton Recycling to bid for a job that will take 2,000 machine hours and 1,600 direct labour hours to produce. The direct labour cost for this job will be $12 per hour, and the direct materials will total $25,000.

Requirements

1. Compute the total job cost and bid price if Middleton Recycling decided to use direct labour hours as the manufacturing overhead allocation base for the year.

2. Compute the total job cost and bid price if Middleton Recycling decided to use machine hours as the manufacturing overhead allocation base for the year.

3. In addition to the bid from Middleton Recycling, B.C. Paper Supply received a bid of $125,000 for this job from Sun Prairie Recycling. What are the ramifications for Middleton Recycling?