Question

Managerial Accounting, 6e Help System Announcements CALCULATOR PRINTER VERSION BACK NEXT Problem 8-12 Pukalani Conference Solutions specializes in the design and installation of meeting and conference centers for large corporations. When bidding on jobs, the company estimates product cost and direct labor for installers and marks up the total cost by 30 percent. On a recent job for Orvieto Industries, the company set its price as follows: Product costs including podiums, seating, lighting, etc. Installer salaries Total $175,800 26,300 202,100 60,630 Markup at 30 percent Bid price $262,730 The job turned out to be a big hassle. Orvieto requested 27 change orders, although the dollar value of the products it requested changed very little. The company also returned 32 items that had extremely minor flaws (scratches that were barely visible and would be expected in normal shipping). Orvieto also requested seven meetings with designers taking 39 hours before its plan was finalized. Normally, only two or three meetings are necessary. Alison Jackson, controller for Pukalani, decided to conduct a customer profitability analysis to determine the profitability of Orvieto. She grouped support costs into three categories with the following drivers: Annual Cost Annual Value of Driver Driver $203,163 72,520 75,840 843 change orders 980 product returns 1,185 meeting hours Change orders Number of retuns Pukalani Conference Solutions has decided to adopt an activity-based pricing scheme. On future jobs, the company will charge a 30 percent markup on the sum of product costs plus installer salaries. In addition, the company will charge $322 per change order, $82 per product return for products that are in excellent condition, and $81 per meeting hour with a Pukalani conference room designer. Design meeting hours What would the profit be on the order from Orvieto? (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Profit / (Loss) $ Open Show Work Click if you would like to Show Work for this question:

Answer 1

Pukalani Conference Solutions
Calculation of activity based overhead rates
		A	B	C=A/B
Activity	Cost Driver	Amount $	Cost Driver used	ABC Rates
Change Orders	Change Orders	203,163.00	843.00	241.00
Number of returns	Number of returns	72,520.00	980.00	74.00
Design meeting hours	Design meeting hours	75,840.00	1,185.00	64.00
	Total Activity Cost	351,523.00
	See C	D	E=C*D
Allocation table		Orvieto
Activity	ABC Rates	Cost Drivers	Cost assigned
Change Orders	241.00	27.00	6,507.00
Number of returns	74.00	32.00	2,368.00
Design meeting hours	64.00	39.00	2,496.00
Total Cost assigned			11,371.00	H
	F	See D	G=F*D
Price charged by Pukalani on activities used by Orvieto
Activity	Price Charged	Cost Drivers	Total Charge
Change Orders	322.00	27.00	8,694.00
Number of returns	82.00	32.00	2,624.00
Design meeting hours	81.00	39.00	3,159.00
Total Cost assigned			14,477.00	I
Markup on activities used by Orvieto			3,106.00	J=I-H
Net profit on order of Orvieto
Particulars			Amount $
Markup on product costs and installer salaries			60,630.00	Given in question
Add: Markup on activities used by Orvieto			3,106.00	See J
Net profit on order of Orvieto			63,736.00