Niagara Steelworks is engaged in a costing dispute with Public Works Canada. The company has a cost plus contract to supply speciality steel that has no evident market price. The contract calls for Niagara Steelworks to be reimbursed for its manufacturing costs plus 35%. An independent shipper hauls the steel from the Niagara Steelworks plant to the various construction sites. The variable cost of manufacturing the steel is $200 per ton and that cost is not in dispute. The issue concerns the allocation of fixed manufacturing costs to this product. Current annual fixed manufacturing cost at Niagara Steelworks is $300,000,000. The plant is operating at 40% of practical capacity, which is measured in tons. Niagara Steelworks computes the fixed manufacturing overhead rate by dividing fixed manufacturing cost by the planned level of operations. This has resulted in charging this contract a rate of $120 per ton for fixed manufacturing costs. Cost analysts at Public Works have objected citing industry evidence that on average steel companies are using 70% of their practical capacity