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Lawn Conference Solutions specializes in the design and installation of meeting and conference centers for large corporations. When bidding on jobs, the company estimates product
Lawn 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 30 percent. On a recent job for Sunland Industries, the company set its price as follows: Product costs including podiums, seating, lighting, etc. Installer salaries Total Markup at 30 percent Bid price $175,900 28,400 204,300 61,290 $265,590 The job turned out to be a big hassle. Sunland requested 23 change orders, although the dollar value of the products it requested changed very little. The company also returned 30 items that had extremely minor flaws (scratches that were barely visible and would be expected in normal shipping). Sunland also requested seven meetings with designers taking 37 hours before its plan was finalized. Normally, only two or three meetings are necessary. Susan Wilson, controller for Lawn, decided to conduct a customer profitability analysis to determine the profitability of Sunland. She grouped support costs into three categories with the following drivers: Driver Change orders Number of returns Design meeting hours Annual Value of Driver 800 change orders 900 product returns 1,220 meeting hours Annual Cost $199,200 61,200 65,880 Calculate the indirect service costs related to the job performed for Sunland Industries. Change orders $ Returns Design hours Total
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