Top Plating Ltd uses electroplating processes to coat products in silver or gold, to customer specifications. Most of the company's work is obtained through the tender process, where the company responds to an invitation to submit a competitive bid. Over the last few months Top Plating has been very quiet, and the managing director, Adam Cornish, is concerned that the business will fail if it does not improve its success rate with tenders. The company has two production departments, preparation and coating, and the production requirements for individual jobs can differ significantly. Some jobs require extensive preparation, with minimal coating; others require little preparation but multiple coats.

The following table describes the results of the five bids that the company submitted last month. (The numbers in brackets after losses indicate where the company was ranked in the bid process.)

Job no. Direct labour hours Direct labou hours Estimated direct Overhead Won/lost

in preparation in coating labour hours cost of bid

1 12 000 3 000 15 000 $41 250 Lost (5th)

2 3 000 12 000 15 000 41 250 Won

3 15 000 0 15 000 41 250 Lost (3rd)

4 0 15 000 15 000 41 250 Won

5 7 500 7 500 15 000 41 250 Lost (2nd)

The pattern of resource usage implied in the above table has persisted now for several months.

The company uses a predetermined 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 $540 000 ($180 000 fixed and $360 000 variable), and for the coating department it is $1 440 000 ($360 000 fixed and $1 080 000 variable). Each department has a monthly practical capacity of 30 000 direct labour hours.

Required:

Write to Adam Cornish identifying a possible cause of this situation. Develop an alternative bidding scheme to overcome this problem. Support your analysis with a comparison of the suggested and existing bidding schemes