1. Transatlantic Corporation has 2 fixed price contracts for 2 different clients. The Transatlantic Corp. has enough capacity for both contracts but is not sure if they will be profitable.

See data below:

Customer Customer A Customer B

Component Type Axle Gear

Contract Value ($) $27,000 $100,000

Contract Quantity 1,000 unit 2,000 units

Material cost/unit $15 $20

Molding time/batch 5 hours 7.5 hours

Batch Size 100 units 50 units

Yearly budgeted overheads are as follows:

Activity Cost Driver Cost Driver Cost Pool

Volume per year

Molding Molding hours 2,000 $150,000

Inspection Batches 150 $75,000

Production

ManagementContracts 20 $125,000

Required:

Calculate the activity-based costs and the profits for each contract (4 marks)