'Our costs are out of control, our accounting system is screwed up, or both!' exclaimed the sales manager. 'We are simply non-competitive on a great many of the jobs we bid on. Just last week we lost a customer when a competitor underbid us by 25 per cent! And I bid the job at cost because the customer has been with us for years but has been complaining about our prices.' This problem, raised at the weekly management meeting, has been getting worse over the years. The Johnson Tool Company produces parts for specific customer orders. When the entity first became successful, it employed nearly 500 skilled machinists. Over the years the entity has become increasingly automated and now uses a number of different robotic machines. It currently employs only 75 production workers but output has quadrupled. The problems raised by the sales manager can be seen in the portions of two bid sheets brought to the meeting (shown below). The bids are from the cutting department, but the relative size of these three types of manufacturing costs is similar for other departments. The cutting department charges overhead to products based on direct labour hours. For the current period, the department expects to use 4000 direct labour hours. Departmental overhead, consisting mostly of depreciation on the robotic equipment, is expected to be $1480000. An employee can typically set up any job on the appropriate equipment in approximately 15 minutes. Once machines are operating, an employee oversees five to eight machines simultaneously. All that is required is to load or unload materials and monitor calibrations. The department's robotic machines will log a total of 25000 hours of run time in the current period. For bid 74683 , the entity was substantially underbid by a competitor. The company did get the job for bid 74687 , but the larger jobs are harder to find. Small jobs arise frequently, but the entity is rarely successful in obtaining them. Required (a) Critique the cost allocation method used within the current cost accounting system. (b) Suggest a better approach for allocating overhead. Allocate costs using your approach and compare the costs of both jobs under the two systems. (c) Discuss the pros and cons of using job costs to determine the price for a job order