COST
-PLUS AND MARKET
-BASED PRICING.
Waverly Inc.
, a large labour
contractor,
supplies contract labour to building
-construction companies. For 2017,
Waverly Inc. has
budgeted to supply 84,000 hours of contract labour. Its variable costs are $13 per hour, and its
fixed costs are $168,000. R
. Green
, the general manager, h
as proposed a cost-
plus approach for
pricing labour at full cost plus 20%.
COST-PLUS AND MARKET-BASED PRICING. 1'i."'i'averly Inc., a large labour contractor, supplies contract labour to buildingconstriction companies. For 2017, Waverly Inc. has budgeted to supply 34,000 hours of contract labour. Its variable costs are $13 per hour, and its fixed costs are $168,000. R. Green, the general manager, has proposed a costplus approach for pricing labour at full cost plus 20%. Required 1. Calculate the price per hour that Waverly Inc. should charge based on Green's proposal. 2. The marketing manager supplies the following information on demand levels at different prices: Demand Hours 124,000 104,000 84,000 74,000 61,000 Price er Hour $16 $1? $20 Waverly Inc. can meet any of these demand levels. Fixed costs will remain unchanged for all the demand levels. On the basis of this additional information, calculate the price per hour that Waverly Inc should charge to maximize operating income. 3. Comment on your answers to requirements 1 and 2. 1Why are they the same or different? SUPPORT-DEPARTMENT COST ALLOCATIONS; DIRECT, STEP-DOWN. CanCorp has two operating departments: Eastern Department and Western Department. Each of the operating departments uses the services of the company's two support departments: Engineering and Information Technology. Additionally, the Engineering and Information Technology departments use the services of each other. Data concerning the past year are as follows: Support Departments Operating Departments Engineering Information Eastern Western Total Technology Department Department Budgeted OH $300,000 $250,000 $650,000 $920,000 $2,120,000 Costs Before and interdepartmental allocations Support work furnished By Engineering - $60,000 $50,000 $90,000 $200,000 Budgeted Engineering Salaries Percentages 30% 25% 45% 100% By Information 450 1,500 1,050 3,000 Technology - Budgeted IT service hours Percentages 15% 50% 35% 100% Required 1. What are the total overhead costs of the operating departments (Eastern and Western) after the support-department costs of Engineering and Information Technology have been allocated using: a) the direct methodTechnology departments use the services of each other. Data concerning the past year are as follows: Support Departments Operating Departments Engineering Information Eastern Western Total Technology Department Department Budgeted OH $300,000 $250,000 $650,000 $920,000 $2,120,000 Costs Before and interdepartmental allocations Support work furnished By Engineering- $60,000 $50,000 $90,000 $200,000 Budgeted Engineering Salaries Percentages 30% 25% 15% 100% By Information 450 1,500 1,050 3,000 Technology - Budgeted IT service hours Percentages 15% 50% 35% 100% Required 1. What are the total overhead costs of the operating departments (Eastern and Western) after the support-department costs of Engineering and Information Technology have been allocated using: a) the direct method b) the step-down method (allocate Engineering first) c) the step-down method (allocate Information Technology first) 2. Which method would you recommend that CanCorp use to allocate service- department costs? Why
