Perfect Designs has been asked to prepare a bid to provide four fashion models with upscale designs for an upcoming competition. Janes Jones, the sales representative for Perfect Designs, works entirely on commission. Neil Gross, the cost accountant for the company, prepares the bid based on the following cost information:

Direct CostsDesign Costs$20,000Materials$70,000Direct Labor$10,000Fittings$20,000Overhead CostsDesign Software$5,200Materials Handling$4,800General and Admin$8,000Total Overhead$18,000Full Product Costs$138,000

Based on Perfect Designs policy of pricing at 120% of full cost, Neil Gross determines that the bid for this job should be $165,600. However, Janet Jones is very alarmed and tells Neil Gross that at that price, the company will likely not win the bid. She explains that she spent $600 of company funds to take the fashion models to a day spa where they revealed that a bid of $156,000 would win the job. Janet further reasons that the company will still make money if it wins the bid at $156,000 because it is higher than the full cost of $138,000.

In your initial post, address the following questions:

1. Is the $600 spent on the day spa relevant to the bid decision? Why or why not? Explain.
2. Neil Gross suggests that if Janet Jones is willing to use cheaper materials, she can achieve a bid of $156,000. What is the target cost of materials that will allow Janet Jones to submit a bid of $156,000 assuming a target markup of 20% of full cost? Note: A cost reduction can only be achieved from materials, no other costs can be reduced.
3. Evaluate whether Janet Jones suggestion to Neil Gross to use the fashion models' tip is unethical. Would it be unethical for Janet Jones to reduce the cost of materials to arrive at a lower bid? What steps should Janet Jones and Neil Gross take to resolve this situation? In assessing the situation, refer to the Standards of Ethical Conduct for Management Accountants from the Institute of Management Accountants.