Rajdeep reviews the numbers and says, 'Your costs are way too high. You have allocated too much overhead costs to this job. You know our fixed overhead is not going to change if we win this order and manufacture the bearings. Rework your numbers. You have got to make the costs lower.' Arnab verifies his numbers are correct. He knows that Rajdeep wants this order because the additional revenues from the order would lead to a big bonus for Rajdeep and the senior division managers. Arnab knows that if he does not come up with a lower bid, Rajdeep will be very upset.

Required:

i. Using Republic's pricing policy and based on Arnab's estimates, calculate the price Republic should bid for the ball-bearings order.

ii. Calculate the incremental costs of the ball-bearing order. Why do you think Republic uses full costs of the product rather than incremental costs in its pricing decisions?

iii. Evaluate whether Rajdeep's suggestion to Arnab to use lower cost numbers is unethical. Would it be unethical for Arnab to change his analysis so that a lower cost can be calculated? What steps should Arnab take to resolve this situation?

the bid. To determine price. Republic's policy Is to mark up the full costs of the product by 10%. Rajdeep teils Arnah that he is keen on winning the bid and that the price he calculates should be competitive. Arnah prepares the following costs for the bid: Direct Materials Direct manufacturing labour overhead costs Design and parts administration Production order Setup Materials handiing General and administration Total overhead oosts Full product costs Ail direct costs and 30% of overhead costs are incremental costs of the order. Ftajdeep reviews the numbers and savs. "four costs are wav too high. You have allocated too much overhead costs to this loop You know our fixed overhead is not going to change if we win this order and manufacture the hearings Rework your numbers You have got to make the costs iower" Arnab veries his numbers are correct He knows that Rajdeep wants this order because the additional revenues from the order wouid lead to a big bonus for Rajdeep and the senior division managers. Arnab knows that if he does not come up with a lower bid. Ftajdeep will be very upset. Required: it Using Republlfs pricing policyI and based on Arnab's estimates. calculate the price Republic should bid for the ball-bearings order. it Eaiculate the Incremental costs of the ball-bearing orders Whv do you think Republic uses full costs of the product rather than incremental costs in its pricing cleclsiorisll IlL Evaluate whether Rajdeep's suggestion to Arr-ab to use lower cost numbers is unethicalr Would it be unethical for Arnab to change his analvsls so that a lower cost can be calculated? What steps should Arnab take to resolve this situation