Shreshtha Enterprises manufactures Caravans. The company has two main Caravans it sells commercially: a Deluxe 50-seater Caravan and a Standard 24-seater Caravan. The Company has also started manufacturing an Economy 10-seater Caravan to Khadka Traders, recently. The Economy Caravan is similar to the Deluxe Caravan.

Khadka has requested Shrestha to create a bid for 150 Economy Caravans. You have been requested by your manager to prepare this bid. In preparing the bid, you find the following two documents:

A standard cost sheet for the Deluxe Caravans sold commercially.

A recent invoice to Khadka for 200 Economy Caravans

The details fo these documents are given below.

Standard Cost Sheet: Deluxe Caravans

Direct materials		$9500
Direct manufacturing labour	32 hours	704
Manufacturing overhead*	$3.50 per direct labour dollar	2,464
Total cost		$12,668
Retail markup on total cost		25%
Retail price		$15,835
Invoice
Date: November, 1, 2015
Bill to: Khadka
For: 200 Economy Caravans
Direct materials		$2.090,000
Direct manufacturing labour**		164,400
Manufacturing overhead		575,400
Total cost		2,829,800
Markup on total cost		20%
Total due		$3,395,760

A.Calculate the total bid if you base your calculations on the standard cost sheet assuming a cost plus 20% mark-up.

B.Calculate the total if you base your calculations on the November 1, 2015 invoice assuming a cost plus 20% mark-up.

C.What are the main discrepancies between the bids you calculated in requirements 1 and 2?

D.What bid should you present to your manager? What principles from the IMA Standards of Ethical Conduct for Practitioners of Management Accounting and Financial Management, as described in Chapter 1, should guide your decision? As a manager what would you do?

*Overhead cost pool includes inspection labour ($15 per hour), setup labour ($12 per hour), and other indirect costs associated with production.

** Direct manufacturing labour includes 30 production hours per unit, 4 inspection hours per unit, and 6 setup hours per unit.

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