P6.37 Job costing; future versus current costs: engineering firm

MJA Engineers is a firm of consulting engineers. The business provides two main services: design and support services for civil engineering projects, such as the building of bridges and roads, and environmental assessments for planned and existing developments. MJA is preparing a tender for a project involving the extension of the main runway at Adelaide Airport. An initial feasibility study recommended extending the western boundary of the airport by either shifting the major arterial road on the western boundary or building an underpass for the road beneath the extended runway. The tender involves assessing the economic and environmental feasibility of each alternative.

MJA's tender manager is responsible for preparing tender bids. She estimates tender costs by identifying all costs that are likely to be directly associated with the project. To obtain the final tender bid, the total professional (engineering and scientific) labour costs are marked up by 75 per cent, and all other costs are marked up by 50 per cent. These margins are intended to cover any indirect costs plus provide the required profit margin on the project.

The tender manager estimated the following direct costs for the airport project:

	Input	Costs
Civil engineers	100 hours	$21 000
Environmental scientists	80 hours	15 000
Support labour	100 hours	9 000
Travel	500 km	750
Computer time	40 hours	3 000
Photocopying, phone, tax		375

Required:

1. Estimate the tender bid for the project.

2. Estimate the profit on the project if the bid is successful and all costs are incurred as planned.

3. Once a project has begun, MJA will use a costing system that tracks all direct costs to projects. If the airport bid is successful, how would managers at MJA use this information?

4. Do you think there is likely to be any link between the costing system used to account for existing projects and the system that the tender manager uses to prepare bids for potential projects. Explain.