Austin Company, Which Experiences Considerable Seasonal Variation in Its Activity

question 77

Essay

Austin Company, which experiences considerable seasonal variation in its activity and has a high level of fixed costs, is preparing a bid for a project. This particular project will be done during a slack period of the year.
Required:


A. How should the fixed costs be handled in the bidding approach to this project?
B. Assume that the company wins the bid and performs the job on a profitable basis, consistent with the results as projected in the bid. Several months later, the customer contacts Austin and requests a bid to do another job. This project, however, must be done during a peak season. How should Austin's management respond? How do you think the customer will respond?

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Definitions:

Uncompensated Impact

Uncompensated impact refers to effects borne by parties who are not directly involved in a transaction or activity and are not compensated for their losses.

Well-Being

The state of being comfortable, healthy, or happy, often considered in a broad perspective including physical, psychological, and social aspects.

Externalities

Externalities are effects of a transaction that are experienced by someone who is not directly involved in the transaction, either positively (positive externalities) or negatively (negative externalities).

Charities

Organizations dedicated to furthering a particular social cause or advocating for a shared point of interest, typically operating on a non-profit basis.