C7.43 LO 7.6 7.7 7.8 Plantwide and departmental overhead rates for decision making: manufacturer Top Plating Ltd uses electroplating processes to coat products in silver or gold, to customer specifications. Most of the company's work is obtained through the tender process, where the company responds to an invitation to submit a competitive bid. Over the last few months Top Plating has been very quiet, and the managing director, Adam Cornish, is concerned that the business will fail if it does not improve its success rate with tenders. The company has two production departments, preparation and coating, and the production requirements for individual jobs can differ significantly. Some jobs require extensive preparation, with minimal coating; others require little preparation but multiple coats. 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 was ranked in the bid process.) Estimated direct Overhead cost Direct labour hours in Job no. preparation Direct labour hours in coating labour hours of bid Won/lost 1 12000 3000 15000 $41 250 Lost (5th) 2 3000 12000 15000 41 250 Won 3 15000 15000 41 250 Lost (3rd) 4 0 15000 15000 41 250 Won 5 10 7 500 7 500 15000 41 250 Lost (2nd)

The pattern of resource usage implied in the above table has persisted now for several months. The company uses a predetermined plantwide overhead rate based on practical capacity, which is measured in direct labour hours. The budgeted overhead for the year for the preparation department is $540000 ($180 000 fixed and $360000 variable), and for the coating department it is $1 440000 ($360000 fixed and $1080000 variable). Each department has a monthly practical capacity of 30000 direct labour hours. Required Write a report to Adam Cornish identifying a possible cause of this situation. Develop an alternative bidding scheme to overcome this problem. Support your analysis with a comparison of the suggested and existing bidding schemes.