Question

If a company has excess capacity, which of the following is a sensible bidding strategy? Allocate common fixed costs to individual jobs before preparing the bid. Set a price to cover all costs. Downplay the potential impact of competitors. Base the bid solely on direct labor hours. Base the bid on the incremental costs incurred because the job will contribute toward the company's profit.

Answer 1

Base the bid on the incremental costs incurred because the job will contribute toward the company's profit.

Step-by-step explanation:

Note that the term having 'excess capacity' means the company has more than enough resources to bid for contacts.

Since the company's overall goal is to make more profit it bidding strategy over its competitors should highlight that it has lower incremental (marginal) cost because of having full capacity in place. This fact would give the company an edge in the bid.