Neptune Pool Company is involved in a number of competitive bidding situations.The following costs are anticipated for a project to be bid for Trimex Manufacturing:
Which of these costs would be treated differently if Neptune had either excess capacity or no excess capacity?
A)Direct materials used,$680,000.
B)Direct labor,$2,450,000.
C)Allocated variable overhead,$570,000.
D)Allocated fixed cost,$230,000.
E)None of these,as all four costs are considered in both situations.

Question

Neptune Pool Company is involved in a number of competitive bidding situations.The following costs are anticipated for a project to be bid for Trimex Manufacturing: 
Which of these costs would be treated differently if Neptune had either excess capacity or no excess capacity?
A)Direct materials used,$680,000. 
B)Direct labor,$2,450,000. 
C)Allocated variable overhead,$570,000. 
D)Allocated fixed cost,$230,000. 
E)None of these,as all four costs are considered in both situations.

Quizplus · Accepted Answer

Allocated fixed costs would be treated differently if Neptune had excess capacity or no excess capacity. If Neptune had excess capacity, they may be able to absorb the fixed costs and not allocate them to the project, which would provide a competitive advantage in the bidding process. However, if they had no excess capacity, the fixed costs would have to be allocated to the project, which could make their bid less competitive. The other costs (direct materials, direct labor, and allocated variable overhead) would not be affected by excess capacity.

Neptune Pool Company Is Involved in a Number of Competitive