TO: Finance Officer
From: Managing Director
Date: 20 March 2015.
Subject: Overhead Allocation
It has come to my attention that overhead allocated to the government jobs is elevated than that assigned to the contract jobs. It is paramount to consider the level of the competition from different manufacturers based on bidding. The worry is the fact that the government price is stated higher than the contractor’s bid considering that it is on the basis of cost-plus. The question is, do we make any considerable profit if we continue selling jobs to the contractors on the current basis of bidding?
It is imperative that we adopt a low-cost pricing strategy by lowering the indirect cost of production in order to maintain the stiff competition in the market. Alternatively, we can liaise with our competitors in order to draft the way forward. Meanwhile, ensure that your department explores the entire alternatives possible in ensuring that there is an optimum allocation of the overhead cost using the most appropriate basis of apportionment in all the cost centers.
In addition, cost controls measures ought to be properly instituted as well strengthened thus promoting transparency, accountability and an excellent platform of preparing financial statements immediately. More importantly is to ensure that your department has the right competent personnel that are familiar with the updated, as well as the valuable accounting skills all the time. Finally, I consider it appropriate that you undertake vigorous attention to ensuring that the entire finance department is at the frontline in adopting new technologies and advancements strengthen the financial systems. It is advisable that you always have the updated information.
Thank you for your cooperation!