Akil Company 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 35 percent. On a recent job for Ashraf Industries, the company set its price as follows: Product costs including podiums, seating, lighting, etc. $150,000 Installer salaries 25,000 Total 175,000 Markup at 35 percent 61,250 Bid price $236,250 The job turned out to be a big pain in the you-know-where! Ashraf requested 25 change orders, although the dollar value of the products it requested changed very little. The company also returned 30 items that had extremely minor flaws (scratches that were barely visible and would be expected in normal shipping). Ashraf also requested seven meetings with designers taking 35 hours before its plan was finalized. Normally, only two or three meetings are necessary. Elda Domi, controller for Akil, decided to conduct a customer profitability analysis to determine the profitability of Ashraf. She thought about the techniques she learned in ACCT 307 and thought that perhaps she could use activity-based costing to help with this analysis. She grouped support costs into three cost pools with the following drivers: Driver Annual Value of Driver Annual Cost Change orders 800 change orders $200,000 Number of returns 1,000 product returns 70,000 Design meeting hours 1,250 meeting hours 75,000 Required: 1. Calculate the indirect service costs related to the job performed for Ashraf Industries. 2. What was the profit margin on the Ashraf Industries job? 3. Assuming that Ashraf Industries causes a disproportionate amount of indirect service costs, what options does Akil have for dealing with this situation? 4. Assume that, based upon Ashrafs analysis, Akil decides to adopt an activity-based pricing scheme. Under this plan, on future jobs, the company will charge a 35 percent markup on the sum of product costs plus installer salaries. In addition, the company will charge $300 per change order, $90 per product return for products that are in excellent condition, and $85 per meeting hour with a Akil conference room designer. NOW what would be the profit margin on the order from Ashraf? 5. What pros and cons do you see with adopting the activity-based pricing scheme above?