Joster Corporation, Which Has a Maximum Labor Capacity of 30,000

question 25

Essay

Joster Corporation, which has a maximum labor capacity of 30,000 hours per month, has considerable flexibility with its customers when it comes to project completion dates. Management is considering the submission of a bid for a job to be performed for the city of Oxford. Costs for the job are as follows: $\begin{array}{lr}\text { Raw materials } & \$ 140,000 \\\text { Labor costs } & 330,000 \\\text { Variable overhead ( } 20 \% \text { of labor) } & 66,000 \\\text { Fixed overhead ( } 45 \% \text { of labor) } & 148,500 \\\text { Allocated administrative cost } & 48,000 \\\text { Total cost } & \$ 732,500 \\\hline\end{array}$
Joster's labor force is paid an average of $22 per hour and if the company wins the bid, it will have three months to complete the work. Management adds a 30% profit margin to all jobs, computed on the basis of total variable cost.
Required:
A. Compute the lowest total cost that the company would use when figuring its bid, assuming that Jester has excess capacity.
B. Compute Joster's bid if the company has no excess capacity.
C. Assume that Joster is currently working at 85% of capacity. Does the firm have sufficient time to complete the job? If not, what could the company do if it desires to do business with Oxford?

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Definitions:

Net Seller

An entity or individual who sells more of a commodity, security, or other assets than they buy.

Budget Line

A graphical depiction of all possible combinations of two goods that can be purchased with a given income and prices, showing the trade-off between them.

Price Fall

A decrease in the price level of goods or services in the market.

Net Seller

An entity or individual who sells more than they purchase in a given market.