Austin Company, Which Experiences Considerable Seasonal Variation in Its Activity

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?