Goal: - To use the Cost-Plus Pricing method to generate a quote for a new project.

Information: - The owners are impressed with your work and the restaurant is still requesting the parking lot project from Frogs, Inc. The owners would like you to provide a formal quote for the clients for the parking lot. They have asked you to use the cost estimates already generated DM and DL from Part 1, MOH for each department calculated in Part 2, and the service department overhead rates computed in Part 3. Use the full cost you calculated in Part 3 question 3. The owners want you to add the 15% minimum rate of return. Since the price originally offered by the customer is too low, you have decided to use the Cost-Plus pricing method to generate your quote.

The manager of the Design Department estimates that 20% of her departments POHR costs come from fixed costs and the remainder comes from variable costs per job. The manager of the Engineering Department estimates that 40% of her POHR costs come from fixed costs. The manager of the Concrete Casting Department estimates that 40% of his POHR costs come from fixed costs and 60% are variable and the owners estimate that half of their POHR costs are fixed and half are variable. We calculated these in Part 2.

Since the client approached the owners, no selling (marketing) costs are incurred. However, you feel that the service costs should be allocated to this job just like any other regular job that Frogs, Inc. does. Finally, the owners believe that this job will require an investment of $50,000 for a larger gravel machine and $15,000 in opportunity costs (i.e. projects that will be lost due to the time being spent working on the parking lot job).

Required: -

1. Identify key assumptions: What key assumptions have been made in preparing to generate a quote for this project? What, if any, additional assumptions will you need to make to finish the sales price? Do you feel these assumptions are valid? Explain.

2. Calculate the Unit Production Cost for the Commercial Parking Lot Project requested by Frogs, Inc. client. Remember to charge only the variable costs for the POHRs calculated in Part 2. Assume that the owners have decided to use frogs produced for the Concrete Casting Department, DL Hours for the Engineering Department, and total projects for the Design Department and the Owners.

3. What is the full cost of the parking lot job including the Service OH?

4. Calculate Frogs, Inc.s markup percentage for the new project.

5. Using your calculations from questions 2 - 4, determine the sales price for the special project using the Cost-Plus Pricing Model.

6. Do you think the client will accept the quoted price? Explain.

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For Reference, see the attached pictures

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Page |1 For Reference- Part 1 1) Compute the cost of the parking lot job using $6.50 per direct labor hour as the POHR. Cost of Direct Material Cost of Labor Material Units Cost unit Total Cost Hours Rate per Hour Total Cost S 50S2,000 Largc OwnCT 40 10 $ 100 S 1.000 Frog Statue S 40 S4,800 120 Medium Frog statue S 60 $240 Sr. Engineers 80 $ 30 is 2.400 Small S 40 $240 S 25 S6,000 Jr. Lngineers240 Frog Statuc Concrete Casters 40 S 20 S 800 100 Plants S 10 S 1.000 Total S 16,0OD 520 Light Poles 20 S 50 S 1.000 Path Ligh 100 S 25 S 2,500 (iravc 200 S 2,000 10 S 7,980 Total cost of the parking lot Direct Materials S 7,980.00 Overhcad Cost S 16,000.00 Direct labor Direct labor hours 520 Overhead cost S 2.922.00 Predetermined overhead rate5.62 Total cost of the parking lot 26.902.00 Cost of Overhcads $2,922.40 2) Compute the cost of the parking lot job using $0.70 for each dollar spent on direct materials as the POIIR. Total cost of the parking lot Overhead Cost Direct Materials S7,980 Dollar spent on direct material S7,980 $16,000 Direct labor Predetermined overhead rateS0.25 Overhead cost $1,995 Cost of Overheads S1,995 Total cost of the parking lot $25,975 Page | 2 For Reference-Part 2 1) Compute the overhead cost per unit using direct labor hours as the plantwide cost driver 245,000 43,680 S5.62 320 362 S2,923 2) Compute the overhead cost per unit using the departmental method. se the projects per year as the cost driver for the Design Department and the Owners. Use the number of concrete frogs made for the Concrete Casting Department and the direct labor hours for the Engineering Department. You will have 4 department Design Engineering Concrete Casting- Owncrs rates. S 150.00 POHR) (POHR) (POIIR) (POIIR) S 11.18 S 15.50 70.00 3) Using your department rates for each department computed in question 3 and the DM and DI. costs computed in Part 1, calculate the total cost of the project. $ 28,086.92 4) Now, compute the overhead rates using the POHR for direct material dollars used (S0.70) for Concrete Casting. Compute the POIIR's for the Design Department, the Engineering Department, and the Owners using direct labor hours as the cost driver Design - 2.40 S 11.18 Engineering Concrete Casting- S 0.25 Owners - S 5) Using your department rates for each department computed in question in Part 1, calculate the total cost of the project. S28.350.40 and the costs computed ulat ien337 For Reference - Part 3 1) Caleulate the average cost to be assigned to each project (assume the projects are all the same for simplicity) using only DM DI, and the MOII in Part 2 question 4 to compare the average cost of Frogs, Inc.'s projects to the cost of the proposed parking lot job Info from DesignEngineering Concrete Casting Owners Total Part 2 S 71,000 S 10,000900,000 $ 1.000 982.000 DMM S 499,200 447.200 $ 208,000 208.0001.362.400 DL S 245.500 MOH Total Prod S 2,589,900 ' of Projects 200 Cost per project S12.949.50 The average cost of the projects Frog's Inc, constructs is $12.949.50 in comparison to the parking lot job which will cost the company approximately $28,086.92 in total costs. So, this job is a much higher priced ob Page 3 For Reference-Part 3 2) Now, calculate the cost of the proposed job using your answers from Part 2, question 4 to include the Service Department costs. The company has decided to usc the sequential method for allocating service overhead and apply Admin Support cost to marketing as well as the production departments. To allocate serviee department costs we arc using the sequential method. As stated, we will allocatc the Admin Support costs first, and then the Marketing Support costs. Admin Support costs are $50,000 The cos driver is Square feet of omice space which is 4,500. The % or usage is as follows: . Markeling Support costs are $40,000 and the cost driver is projects per year Admin Support (S50,000 Number of Departmcnt llocated SOH total square feet used Design De 13.33% 6,665.00 600 2000 44.44% 22,220.00 Hngineefin 400 Concrete Casting 8.89% 4,445.00 Owners 16.67% 8,335.00 Marketin 8,335.00 16.67% Marketing Support (S40.000 S8.335 S48.33.5 % | Allocated soil | Total allocated SO11 (both SOISO per project to be Projects per Departmen allocated to total year Service Dept) our job Design Depl 200.00 125% $ 12.083.75 | 18,748.75 93.74 Engineering 200.00125% $ 12,083.75 | $ 34,303.75 171.52 Coneretc 200.00125% $ 12.083.75 | $ 16.528.75 82.64 Casting 200.00 25% $ 12,083.75 | 102.09 Owners 20,418.75 Total SOII 449.99 ect er Using the cost information calculated in Part 2. question 4 we can now calculate the full cost of the parking lot job DM S 7,980 DL: - S 16,000 S 4.106.92 MOH: S 450.00 SOH: - Full Cost: - S 28,536.92 Page |1 For Reference- Part 1 1) Compute the cost of the parking lot job using $6.50 per direct labor hour as the POHR. Cost of Direct Material Cost of Labor Material Units Cost unit Total Cost Hours Rate per Hour Total Cost S 50S2,000 Largc OwnCT 40 10 $ 100 S 1.000 Frog Statue S 40 S4,800 120 Medium Frog statue S 60 $240 Sr. Engineers 80 $ 30 is 2.400 Small S 40 $240 S 25 S6,000 Jr. Lngineers240 Frog Statuc Concrete Casters 40 S 20 S 800 100 Plants S 10 S 1.000 Total S 16,0OD 520 Light Poles 20 S 50 S 1.000 Path Ligh 100 S 25 S 2,500 (iravc 200 S 2,000 10 S 7,980 Total cost of the parking lot Direct Materials S 7,980.00 Overhcad Cost S 16,000.00 Direct labor Direct labor hours 520 Overhead cost S 2.922.00 Predetermined overhead rate5.62 Total cost of the parking lot 26.902.00 Cost of Overhcads $2,922.40 2) Compute the cost of the parking lot job using $0.70 for each dollar spent on direct materials as the POIIR. Total cost of the parking lot Overhead Cost Direct Materials S7,980 Dollar spent on direct material S7,980 $16,000 Direct labor Predetermined overhead rateS0.25 Overhead cost $1,995 Cost of Overheads S1,995 Total cost of the parking lot $25,975 Page | 2 For Reference-Part 2 1) Compute the overhead cost per unit using direct labor hours as the plantwide cost driver 245,000 43,680 S5.62 320 362 S2,923 2) Compute the overhead cost per unit using the departmental method. se the projects per year as the cost driver for the Design Department and the Owners. Use the number of concrete frogs made for the Concrete Casting Department and the direct labor hours for the Engineering Department. You will have 4 department Design Engineering Concrete Casting- Owncrs rates. S 150.00 POHR) (POHR) (POIIR) (POIIR) S 11.18 S 15.50 70.00 3) Using your department rates for each department computed in question 3 and the DM and DI. costs computed in Part 1, calculate the total cost of the project. $ 28,086.92 4) Now, compute the overhead rates using the POHR for direct material dollars used (S0.70) for Concrete Casting. Compute the POIIR's for the Design Department, the Engineering Department, and the Owners using direct labor hours as the cost driver Design - 2.40 S 11.18 Engineering Concrete Casting- S 0.25 Owners - S 5) Using your department rates for each department computed in question in Part 1, calculate the total cost of the project. S28.350.40 and the costs computed ulat ien337 For Reference - Part 3 1) Caleulate the average cost to be assigned to each project (assume the projects are all the same for simplicity) using only DM DI, and the MOII in Part 2 question 4 to compare the average cost of Frogs, Inc.'s projects to the cost of the proposed parking lot job Info from DesignEngineering Concrete Casting Owners Total Part 2 S 71,000 S 10,000900,000 $ 1.000 982.000 DMM S 499,200 447.200 $ 208,000 208.0001.362.400 DL S 245.500 MOH Total Prod S 2,589,900 ' of Projects 200 Cost per project S12.949.50 The average cost of the projects Frog's Inc, constructs is $12.949.50 in comparison to the parking lot job which will cost the company approximately $28,086.92 in total costs. So, this job is a much higher priced ob Page 3 For Reference-Part 3 2) Now, calculate the cost of the proposed job using your answers from Part 2, question 4 to include the Service Department costs. The company has decided to usc the sequential method for allocating service overhead and apply Admin Support cost to marketing as well as the production departments. To allocate serviee department costs we arc using the sequential method. As stated, we will allocatc the Admin Support costs first, and then the Marketing Support costs. Admin Support costs are $50,000 The cos driver is Square feet of omice space which is 4,500. The % or usage is as follows: . Markeling Support costs are $40,000 and the cost driver is projects per year Admin Support (S50,000 Number of Departmcnt llocated SOH total square feet used Design De 13.33% 6,665.00 600 2000 44.44% 22,220.00 Hngineefin 400 Concrete Casting 8.89% 4,445.00 Owners 16.67% 8,335.00 Marketin 8,335.00 16.67% Marketing Support (S40.000 S8.335 S48.33.5 % | Allocated soil | Total allocated SO11 (both SOISO per project to be Projects per Departmen allocated to total year Service Dept) our job Design Depl 200.00 125% $ 12.083.75 | 18,748.75 93.74 Engineering 200.00125% $ 12,083.75 | $ 34,303.75 171.52 Coneretc 200.00125% $ 12.083.75 | $ 16.528.75 82.64 Casting 200.00 25% $ 12,083.75 | 102.09 Owners 20,418.75 Total SOII 449.99 ect er Using the cost information calculated in Part 2. question 4 we can now calculate the full cost of the parking lot job DM S 7,980 DL: - S 16,000 S 4.106.92 MOH: S 450.00 SOH: - Full Cost: - S 28,536.92