Lauden Conference Solutions 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%. On a recent job for Orvieto Industries, the company sets its price as follows:

Product cost including podiums, seating, lighting, ect. $175,000

Installers salaries 25,000

Total 200,000

Markup at 35% 70,000

Bid price $270,000

The job turned out to be a big hassle. Orvieto requested 25 change orders, although the dollar value of the products it requested changed very little. The company also returned 33 items that had extremely minor flaws (scratches that were barely visible and would be expected in normal shipping). Orvieto also requested seven meeting with designers taking 40 hours before its plan was finalized. Normally, only two or three meeting are necessary.

Nancy Jackson, controller of Lauden, decided to conduct a customer profitability analysis to determine the profitability of Orvieto. She grouped support cost into three categories with the following drivers:

Driver Annual Value of Driver Annual Cost

Change orders 850 change orders $212,500

Number of returns 1,000 product returns 70,000

Design meeting hours 1,300 meeting hours 78,000

Question a) Calculate the indirect service cost related to the job performed for Orvieto Industries.

Question b) Assuming that Orvieto Industries causes a disproportionate amount of indirect service cost, how should Lauden deal with this situation?