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: $$\begin{array} { l r }
\text { Direct materials used } & \$ 680,000 \
\text { Direct labor } & 2,450,000 \
\text { Allocated variable overhead } & 570,000 \
\text { Allocated fixed cost } & 230,000
\end{array}$$ 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: $$\begin{array} { l r } 
\text { Direct materials used } & \$ 680,000 \
\text { Direct labor } & 2,450,000 \
\text { Allocated variable overhead } & 570,000 \
\text { Allocated fixed cost } & 230,000
\end{array}$$ 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 depending on capacity. If there is excess capacity, fixed costs are not relevant to the decision, as they do not change with the level of production. If there is no excess capacity, fixed costs may become relevant as they could increase with additional production.

Neptune Pool Company Is Involved in a Number of Competitive