1. Kootenay Welding company is not sure whether or not to use direct labour hours or machine hours to allocate manufacturing overhead. They expect total manufacturing overhead for the year to be $450,000. They expect to have 6,000 direct labour hours and 4,500 machine hours. Kootenay Welding Company is going to bid on a contract that is expected to take 450 direct labour hours and 375 machine hours. Direct Labour costs $45 an hour and materials would total $25,000.

1. Assuming a 25% markup, what would Kootenay Welding Company bid for the contract if they used direct labour hours as an allocation base?

2. Assuming a 25% markup, what would Kootenay Welding Company bid for the contract if they used machine hours as an allocation base?

3. If a competitor bids $100,000 amount, what does that mean for Kootenay Welding Company?

4. In a desire to decide whether or not use direct labour hours or machine hours as an allocation base for manufacturing overhead, Kootenay Welding Company does regression analysis. They find that direct labour hours vs manufacturing overhead has an r squared value of 0.856 and machine hours vs manufacturing overhead had an r squared of 0.962. Which would be a better allocation base? What does this mean for their bid (assuming the competitors bid of 100,000)?