Aerial Roofing performs roofing services for commercial clients. The company recently submitted a bid of $371,000 to the Ponca School System, computed as follows:

Aerial adds a 20% profit margin to all jobs, computed on the basis of total direct cost. In Ponca's case the profit margin amounted to $50,000 ($250,000 * 20%), producing a bid price of $371,000. Assume that 60% of construction overhead is fixed.
Required:

A. If Aerial had excess capacity, what would be the lowest cost total that the company should use when figuring its bid for the district? How can High justify this amount?
B. If Aerial had no excess capacity, what would be the lowest price that the company should charge?
C. What is the primary benefit and problem of approaching a competitive bid situation with a low-bid philosophy?

Question

Aerial Roofing performs roofing services for commercial clients. The company recently submitted a bid of $371,000 to the Ponca School System, computed as follows:
  
Aerial adds a 20% profit margin to all jobs, computed on the basis of total direct cost. In Ponca's case the profit margin amounted to $50,000 ($250,000 * 20%), producing a bid price of $371,000. Assume that 60% of construction overhead is fixed. 
Required:

A. If Aerial had excess capacity, what would be the lowest cost total that the company should use when figuring its bid for the district? How can High justify this amount?
B. If Aerial had no excess capacity, what would be the lowest price that the company should charge?
C. What is the primary benefit and problem of approaching a competitive bid situation with a low-bid philosophy?

Quizplus · Accepted Answer

The Answer of Aerial Roofing performs roofing services for commercial clients. The company recently submitted a bid of $371,000 to the Ponca School System, computed as follows:
  
Aerial adds a 20% profit margin to all jobs, computed on the basis of total direct cost. In Ponca's case the profit margin amounted to $50,000 ($250,000 * 20%), producing a bid price of $371,000. Assume that 60% of construction overhead is fixed. 
Required:

A. If Aerial had excess capacity, what would be the lowest cost total that the company should use when figuring its bid for the district? How can High justify this amount?
B. If Aerial had no excess capacity, what would be the lowest price that the company should charge?
C. What is the primary benefit and problem of approaching a competitive bid situation with a low-bid philosophy?

Aerial Roofing Performs Roofing Services for Commercial Clients