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)/(bMolding $150,000 2,000 $______/molding hr.

Inspection $75,000 150 $______/batch

Prod. Mgmt. $125,000 20 $______/contract

(Calculate the cost drivers consumed by each contract)

Cost driver Customer AAA Customer BBB

Batches ____?___ ___?____

Molding hours ____?___ ___?___

Contracts 1 1

(Calculate the costs and profit for each contract)

Contract AAA Contract BBB

Selling price $27,000 $100,000

Materials $________ $________

Molding $________ $________

Inspection $________ $________

Management $________ $________

Total cost $________ $________

Profit/(Loss) ($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 $________ $________

Overheads $________ $________

Total Cost $________ $________

Profit/(Loss) $3,250 $7,500