Company XYZ ha
Company XYZ has 2 fixed price contracts for 2 different clients. The company has enough capacity for both contracts but is uncertain whether they will be profitable. Using the information below, a) calculate the activity-based costs and profits for each contract (this requires more than one step) and b) calculate the profit for each job using absorption costing, absorbing overheads using molding hours:
|
Customer |
AAA |
BBB |
|
Component Type |
A999 |
B999 |
|
Contract Value ($) |
$27,000 |
$100,000 |
|
Contract Quantity |
1,000 unit |
2,000 unit |
|
Material cost/unit |
$15 |
$20 |
|
Molding time/batch |
5 hours |
7.5 hours |
|
Batch size |
100 units |
50 units |
|
Annual Budgeted Overheads |
|||
|
Activity |
Cost Driver |
Cost Driver Volume/Yr |
Cost Pool |
|
Molding |
Molding hours |
2,000 |
$150,000 |
|
Inspection |
Batches |
150 |
$75,000 |
|
Prod. Mgmt. |
Contracts |
20 |
$125,000 |
|
(Calculate cost per unit of cost driver) |
|||
|
Activity |
Cost pool (a) |
Cost Driver/Yr (b) |
Cost/Unit of Cost Driver (a)/(b) |
|
Molding |
$150,000 |
2,000 |
A. $ /molding hr. |
|
Inspection |
$75,000 |
150 |
B. $ /batch |
|
Prod. Mgmt. |
$125,000 |
20 |
C. $ /contract |
|
(Calculate the cost drivers consumed by each contract) |
||
|
Cost driver |
Customer AAA |
Customer BBB |
|
Batches |
D. |
E. |
|
Molding hours |
F. |
G. |
|
Contracts |
1 |
1 |
|
(Calculate the costs and profit for each contract) |
||
|
Contract AAA |
Contract BBB |
|
|
Selling price |
$27,000 |
$100,000 |
|
Materials |
H. $ |
I. $ |
|
Molding |
J. $ |
K. $ |
|
Inspection |
L. $ |
M. $ |
|
Management |
N. $ |
O. $ |
|
Total cost |
P. |
Q. |
|
|
($3,000) |
$11,250 |
|
(Multiply (total annual overheads/annual molding hour) by materials and then overheads) |
||
|
(b) |
Contract AAA |
Contract BBB |
|
Selling price |
$27,000 |
$100,000 |
|
Materials |
R. $ |
S. $ |
|
Overheads |
T. $ |
U. $ |
|
Total Cost |
V. $ |
W. $ |
|
Profit/(Loss) |
$3,250 |
$7,500 |
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