Question
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
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
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