Consider the information in Problem 811. Lauden 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 \(\$ 300\) per change order, \(\$ 100\) per product return for products that are in excellent condition, and \(\$ 75\) per meeting hour with a Lauden conference room designer.

Required

a. What would the profit be on the order from Orvieto in Problem 8-11?

Problem 8-11

Lauden 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 the total cost up by 30 percent. On a recent job for Orvieto Industries, the company set its price as follows:

The job turned out to be a big hassle. Orvieto requested 20 change orders, although the dollar value of the products they requested changed very little. The company also returned 25 items that had extremely minor flaws (scratches that were barely visible and would be expected in normal shipping). Orvieto also requested six meetings with designers taking 30 hours before its plan was finalized. Normally, only two or three meetings are necessary.
Nancy Jackson, controller for Lauden, decided to conduct a customer profitability analysis to determine the profitability of Orvieto. She grouped support costs into three categories with the following drivers:

b. Identify pros and cons of adopting the activity-based pricing scheme.

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Product costs including podiums, seating, lighting, etc. $140,000 Installer salaries 20,000 Total 160,000 Markup at 30 percent 48,000 Bid price $208,000