Aerial Roofing Performs Roofing Services for Commercial Clients

question 91

Essay

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?

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Definitions:

Expensive

Something that requires a high cost or a large amount of resources to obtain.

Factor Analysis

A statistical technique used to identify underlying variables, or factors, that explain the pattern of correlations among various measures.

Woodworth Personality Data Sheet

One of the earliest self-report inventories developed to assess psychological traits, particularly in the context of soldiers during World War I.

Psychiatric Problems

Mental health conditions that affect a person's thinking, feeling, mood, and behavior, requiring professional treatment.