Baker, Inc. manufactures ball bearings. Baker is preparing to submit a bid for a new ball- bearings order. Greg Lazarus, controller of the Bearings Division of Baker, has asked John Decker, the cost analyst, to prepare the bid. To determine price, Baker marks up the full costs of the product by 10 percent. Lazarus tells Decker that he is keen on winning the bid and that the price he calculates should be competitive. Decker prepares the following costs for the bid: Direct materials costs Direct manufacturing labor costs Design and parts administration overhead costs Production-order overhead costs Setup overhead costs Materials-handling overhead costs General and administration overhead costs $40,000 10,000 4,000 5,000 5,500 6,500 9,000 All direct costs and 30% of overhead costs are incremental costs of the order. Lazarus reviews the numbers and says, As usual your costs are way too high. You have allocated a lot of overhead costs to this job. You know our fixed overhead is not going to change if we win this order and manufacture the bearings. Ever since we installed this new activity- based costing system, we never seem to be able to come up with reasonable product and job costs. Rework your numbers. You have got to make the costs lower." On returning to his office, Decker rechecks his numbers. He knows that Lazarus wants this order because the additional revenue from the order would lead to a big bonus for Lazarus and the senior division managers. Decker wonders if he can adjust the costs downward. He knows that if he does not come up with a lower bid, Lazarus will be very upset. Required: 1. Using Baker's pricing policy (full costing) and based on Decker's estimates, calculate the price Baker should bid for the ball bearing order. 2. Calculate the incremental costs of the ball bearing order. Why do you think Baker uses full costs of the product rather than incremental costs in pricing decisions (a minimum of two possible reasons are required for full points)? 3. Evaluate whether Lazarus' suggestion to Decker to use lower cost numbers is unethical given the company's policy of bidding at full product cost. (Hint: Consider the following IMA standards: Competence, Integrity & Credibility. Would it be unethical for Decker to change his analysis so that a lower price can be bid? What steps should Decker take to resolve this situation