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Problem 6.4 (LOI) Allocated Cost and Opportunity Cost Brennen produces a mint syrup used by gum and candy companies. Recently, the company has had excess capacity due to a new competitor entering its market. Brennen is currently bidding on a potential order from Quality Candy for 5,000 cases of syrup The estimated cost of each case is $23, as follows Diret material $9 Direct labor 5 Overhead 9 Total $23 The predetermined overhead rate is $1.80 per direct labor dollar. This was estimated by dividing estimated annual overhead ($1,080,000) by estimated annual direct labor ($600,000). The $1,080,000 of overhead is composed of $270,000 of variable costs and 5810,000 of fixed costs. The largest fixed cost relates to depreciation of plant and equipment Required a. With respect to overhead, what is the opportunity cost of producing a case of syrup? b. Suppose Brennen can win the Quality Candy business by bidding a price of $19 per case (but no higher price will result in a winning bid). Should Brennen bid $19? c. Discuss how an allocation of overhead based on opportunity cost would facilitate an appropriate bidding decision that Opportunity Cost: Incremental Cost of Production Direct Material Direct Labor Variable Overhead Total b. Fixed Overhead Rate: Fixed overhead rate per case: Incremental cost to produce the cases: Should Brennen bid $19? Why C. Discuss how an allocation of overhead based on opportunity cost would facilitate an approriate bidding decision

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