Columbus Shipbuilding Ltd

Essay

Columbus Shipbuilding Ltd. is preparing a bid on a contract to supply 8 small vessels. It is facing two issues in preparing its estimates. First, due to volatility in the market place there is uncertainty regarding the cost of direct materials. Second, it recognizes that there will be improvements in labour productivity during the contract.
Columbus has estimated the following probability distribution for its direct materials costs:
In estimating the direct labour costs, Columbus has predicted a 90% cumulative average time learning curve. The time required to produce the first vessel is estimated at 4,000 hours. Direct labour costs average $68 per hour.
Manufacturing overhead is applied at the rate of 250% of direct labour costs. The bid price will be established to permit a 40% gross margin.
Required:
Prepare the total bid price for the order.