Mason Industries is a custom manufacturer of circuit boards. Clearwater has been asked to prepare bid for a customer. Clearwater's bidding policy is to add a 30% markup to the sum of materials, labor, and overhead costs. Materials are estimated using the customer's schematic drawings. Labor is estimated using time-and-motion studies to determine the labor time needed, multiplied by a blended wage rate of $7.50 per hour. Overhead is crudely estimated to be $29.50 per labor hour.

A bid for Acme Weighing Systems is expected to have materials costs of $27.55 and take 5.6 labor hours.

Required:

1. Determine the bid price that Clearwater Industries would provide to its customer, Acme Weighing Systems using the Cost-plus pricing approach. Show calculations. [4 marks]

2. Explain the rationale behind the cost-plus pricing approach. [4 marks]