1. Kingston Company manufactures modular homes. The company has two main products that it sells commercially: a 1,000 square foot, one-bedroom model and a 1,500 square foot, two-bedroom model. The company recently began providing emergency housing (huts) to FEMA. The emergency housing is similar to the 1,000 square foot model.

FEMA has requested Kingston to create a bid for 150 emergency huts to be sent for flood victims in the south. Your boss has asked that you prepare this bid. In preparing the bid, you find a recent invoice to FEMA for 200 huts provided after a hurricane affected the south. You also have a standard cost sheet for the 1,000 square foot model sold commercially. Both are provided as follows:

Standard cost sheet: 1,000 sq. ft. one-bedroom model

Direct materials $8,000

Direct manufacturing labor 30 hours 600

Manufacturing overhead* $3 per direct labor dollar 1,800

Total cost $10,400

Retail markup on total cost 20%

Retail price $12,480

* Overhead cost pool includes inspection labor ($15 per hour), setup labor ($12 per hour), and other indirect costs associated with production.

INVOICE:

DATE: September 15, 2005

BILL TO: FEMA

FOR: 200 Emergency Huts

SHIP TO: New Orleans, Louisiana

Direct materials $1,840,000

Direct manufacturing labor** 138,400

Manufacturing overhead 415,200

Total cost $2,393,600

Government contract markup on total cost 15%

Total due $2,752,640

**Direct manufacturing labor includes 28 production hours per unit, 4 inspection hours per unit, and 6 setup hours per unit.

Required:

1. Calculate the total bid if you base your calculations on the standard cost sheet assuming a cost plus 15% government contract.
2. Calculate the total bid if you base your calculations on the September 15, 2005 invoice, assuming a cost plus 15% government contract.
3. What are the main discrepancies between the bids you calculated in #1 and #2?
4. What bid should you present to your boss? Why?