Question

JUMUIVO, 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 Markup at 30 percent Bid price $175,800 26,300 202,100 60,630 $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. Allson 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: Driver Change orders Number of returns Design meeting hours Annual Value of Driver Annual Cost 843 change orders $203,163 980 product returns 72,520 1,185 meeting hours 75,840 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. What would the profit be on the order from Orvieto? (Enter loss using either a negative sign preceding the number .g. -45 or parentheses e.g. (45).) Profit/(Loss) Click if you would like to Show Work for this question: Open Show Work

Answer 1

Product costs	175800
Installer salaries	26300
Total	202100
Mark up at 30 percent	60630
Bid Price	262730
Add: Support costs charged	14477
Total revenues		277207
Less: Costs
Product costs	175800
Installer salaries	26300
Support costs	11371	213471
Profit / Loss		63736

Workings:

Driver	Annual value	Annual cost	Cost per driver
Change orders	843	203163	241
Number of returns	980	72520	74
Design meeting hours	1185	75840	64

Driver	Cost per driver	Rate charged per driver	Value	Cost incurred [Cost per driver * Value]	Rate charged [Rate per driver * Value]
Change orders	241	322	27	6507	8694
Number of returns	74	82	32	2368	2624
Design meeting hours	64	81	39	2496	3159
Total				11371	14477