Wardlaw Company, Which Experiences Considerable Seasonal Variation in Its Activity

question 77

Essay

Wardlaw 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 Wardlaw and requests a bid to do another job. This project, however, must be done during a peak season. How should Wardlaw's management respond? How do you think the customer will respond?

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Definitions:

Direct Materials

Raw materials that are directly traceable to the production of specific goods or products.

Variable Overhead

Costs that fluctuate with production volume, such as electricity for manufacturing equipment, excluding fixed costs.

Excess Capacity

A situation where a company can produce more goods or provide more services than currently demanded, indicating unused productive potential.

Special Order

A one-time customer order often involving a large quantity and requiring a separate pricing or product specification arrangement.