Question

Assume that your company sells portable housing to both general contractors and the government. It sells...

Assume that your company sells portable housing to both general contractors and the government. It sells jobs to contractors on a bid basis. A contractor asks for three bids from different manufacturers. The combination of low bid and high quality wins the job. However, jobs sold to the government are bid on a cost-plus basis. This means the price is determined by adding all costs plus a profit based on cost at a specified percent, such as 10%. You observe that the amount of overhead applied to government jobs is higher than that applied to contract jobs. These allocations concern you. Point: Students could compare responses and discuss differences in concerns with allocating overhead.

Required

  1. Write a half-page memo to your company’s chief financial officer outlining your concerns with overhead allocation.

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