PLANTWIDE AND DEPARTMENTAL OVERHEAD RATES FOR DECISION MAKING: MANUFACTURER

Top plating LTD uses electroplating processes to caot produccts in silver or gold.to individual customers specs.most of the company's work is obtained through the tender process,where the company responds to an invitation to submit a cometitive bid.over the last few months Top Plating has been very quiet and the manager is concerned that the business will fail if it does not improve its sucess rate with tenders.the company has two production departments,preparation and coating,and the production requirments for individuall jobs can differ significantly.some job require extensive preparation,with minimal coating others require little praparation but multiple caots.

the follwing table describes the result of the five bids that the company submitted last month.(the num in brackets after losses indicate where the company was ranked in the bid process):

jon no	direct labour hours in praparation	direct labours hours in caoting	estimated direct labour hours	overhead cost of bid	won/loss
1	12000	3000	15000	41250$	lost(5th)
2	3000	12000	15000	41250	won
3	15000	0	15000	14250	lost(3rd)
4	0	15000	15000	41250	won
5	7500	7500	15000	41250	lost(2nd)

the pattern of resource usage implied in the above table has presisted for several months.the company uses a pretermined plantwide overhead rate based on practical capacity which is measured in direct labour hours.the budgeted overhead for the year for the preparation department is 540000(180000 $ fixed and 360000 $ varaiable) and for the coating department it is 1440000$(360000 fixed and 1080000 $ varaible) each dep has a monthly practical capacity of 30000 direct labour hous.

REQUIRED:

1.WRITE a report to the manager identifying a possible cause of this situation develop an altrnative bidding scheme to overcome this problem ,support your analysis with a comparision of the suggested and existing scheme.

2.when calculating the applied overhead using the departmental overhead method instead of the plantwide method can we use the same cost driver with both the preparation department and the caoting department?

3.what is overhead cost of bid (the number in the table)?