JK Fibers Incorporation, has been manufacturing and trading in the textile industry for over 30 years. The company owned by the Taylor family, operates across two states and is primarily involved in the manufacture and supply of textile synthetic fibers that the company uses in many products such as blankets, coats and uniforms for firefighters. The company uses a standard cost system and applies overhead on the basis of direct labour hours. JK Fibers Incorporation has recently received a request to bid on the manufactures of 800,000 blankets scheduled for delivery to several military bases. The bid must be stated at total cost per unit plus a return on total cost of no more than 10 percent after income taxes. Total cost has been defined as including all variable costs of manufacturing the product, a reasonable amount of fixed overhead, and reasonable incremental administrative costs associated with the manufacture and sale of the product. The contractor has indicated that bids in excess of $30 per blanket are not likely to be considered. In order to prepare the bid for the 800,000 blankets, Mr. Brown, cost accountant, has gathered the following information about the costs associated with production of the blankets. Direct material $1.70 per pound of fibers Direct labor $6.50 per hour Direct machine costs $10.00 per blanket Variable overhead $3.00 per direct labour hour Fixed overhead $8.00 per direct labour hour Incremental administrative costs 2,450 per 1,000 blankets Special fee $0.50 per blanket Material usage 6 pounds per blanket Production rate 4 blankets per direct labour hour Effective tax rate 35% Direct machine costs consist of items such as special lubricants, replacement of needles used in stitching, and maintenance costs. These costs are not included in the normal overhead rates. Mr. Brown recently developed a new blanket fiber at a cost $750,000. In an effort to recover this cost, he has instituted a policy of adding a $0.50 fee to the cost of each blanket using the new fiber. To date, the company has recovered a $125,000. He knows that does not fit within the definition of total cost, as it is not a cost of manufacturing the product. Required: a. Calculate the minimum price per blanket that JK Fibers could bid without reducing the company's operating income. (12 MARKS) Nilai University/Academic /Set 1 Page 7 of 8b. Using the total cost criteria and the maximum allowable return specified, compute JKFibers' bid price per blanket. {SMAHKSi c. Without prejudice to your answer to part {b}, assume that the price per blanket that JK Fibers calculated using the costplus criteria specied is greater than the maximum bid 53:! per blanket allowed. Discuss thefactorsJK Fibers should consider before submitting a bid at the maximum acceptable price of$3 per blanket. {B MARKS]