diagnosis of competitive position27 Ralph' s Paekaging, Inc., (RP) designs and produees specialized paekages for a variety of industrial produet firms. Most jobs are won on a competitive bid. The major steps in the produetion process are design, printing, eutting, and assembly.

Historieally, RP has earned a 14% margin, but lately the margin has been deelining and most recently was 7.2%.

RP fears its earlier success has led to eomplaceney and its eosts are unnecessarily high. The accounting library identifies labor, material, subcontracting, energy, and space eosts. Some are broken down by design, printing, eutting and assembly.

Since work in process has never been a signifieant problem, no formal job eosting system has been used.

At this point Ralph deeides to look a little more dosely at the eost eonjecture.

A recently eompleted job, job 113, is randomly selected. Ralph searehes through the purehase orders, stores requisitions, and sUbcontracting invoices and locates the following eost items that pertain to job 113:

miscellaneous materiaIs $ 125 standard paekaging materials 1,875 subeontracted printing 425 Working through payroll records, Ralph is also able to identify direet labor time.

Three labor groups are present, regular, semi-skilled and skilled. Their respective wage rates are 11, 18 and 22 dollars per hour. The time sheets reeord the following hours:

unskilled semi-skilled skille d design 10 11 34 printing 10 18 20 cutting 12 assembIy 10 10 24 Overhead averages 110% of labor eost. (To identify overhead eost, Ralph took the total of all manufacturing eost, subtracted the labor eost that eould be identified with specifie jobs and the material and subeontraeting eosts that eould be similarly identified. )

a] What was the eost of job 113?

b] The bid sheet for job 113 shows that, at the time the job was bid, RP estimated the direet eost as follows:

materiaIs subeontract work 2,100 400 design labor 918 printing labor 799 cutting labor 238 assembly labor 714 for a total direet eost of 5, 169. In tum, the job was bid using RP' s standard bidding role of bid = 180% of estimated direet eost. For bidding purposes, labor is eosted at 17 per hour. What was RP's bidonjob 113? Did RPeam a positive profit on this job?

e] Suppose RP' s labor eost does average 17 per hour and that materials and subeontraet work is, on average, equal to direet labor eost. Further suppose overhead averages 110% of labor eost. Presuming many bidding sueeesses using the noted bidding role, what should RP's margin be?

d] What advice ean you give RP? Do you think they should invest in a job order eosting system?

AppendixLO1