69. Global Tool & Die Maker is bidding on a contract with the government of Manatuka. The contract is a cost-plus situation, with an add-on profit margin of 50 percent. Direct material and direct labor are expected to total $15 per unit. Variable overhead is estimated at $4 per unit. Total fixed overhead to produce the 50,000 units needed by the government is $1,400,000. By acquiring the machinery and supervisory support needed to produce the 50,000 units, Global Tool will obtain the actual capacity to produce 80,000 units.

a. Should the price bid by Global Tool include a fixed overhead cost of $28 per unit or $17.50? How were these two amounts determined? Which of these two amounts would be more likely to cause Global Tool to obtain the contract? Why?

b. Assume that Global Tool set a bid price of $54.75 and obtained the contract.

After producing the units, Global Tool submitted an invoice to the government of Manatuka for $3,525,000. The minister of finance for the country requests an explanation. Can you provide one?

c. Global Tool uses the excess capacity to produce an additional 30,000 units while making the units for Manatuka. These units are sold to another buyer.

Is it ethical to present a $3,525,000 bill to Manatuka? Discuss.

d. Global Tool does not use the excess capacity while making the units for Manatuka. However, several months after that contract was completed, the company begins production of additional units. Was it ethical to present a $3,525,000 bill to Manatuka? Discuss.

e. Global Tool does not use the excess capacity because no other buyer exists for units of this type. Was it ethical to make a bid based on a fixed overhead rate per unit of $54.75? Discuss.